sec document
As filed with the Securities and Exchange Commission on September 30, 2004
Registration No. 333-118899
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
EMPIRE RESORTS, INC.
SUBSIDIARY GUARANTORS LISTED ON THE FOLLOWING PAGE
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3714474
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
c/o Monticello Raceway
Route 17B
Monticello, New York 12701
(845) 794-4100
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Scott A. Kaniewski
Chief Financial Officer
Empire Resorts, Inc.
707 Skokie Boulevard, Suite 600
Northbrook, Illinois 60062
(847) 418-3804
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service of Process)
-----------------------------------
Copies to:
Robert H. Friedman, Esq.
Olshan Grundman Frome Rosenzweig & Wolosky LLP
Park Avenue Tower
65 East 55th Street
New York, New York 10022
(212) 451-2300
----------------------------------------
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box./ /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box./X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering./ /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering./ /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box./ /
CALCULATION OF REGISTRATION FEE
=======================================================================================================================
Proposed
Maximum Proposed Maximum
Amount to be Offering Price Aggregate Offering Amount of
Title of Shares to be Registered Registered Per Share(1) Price(1) Registration Fee
-----------------------------------------------------------------------------------------------------------------------
5 1/2% Convertible Senior Notes $65,000,000 100% $65,000,000 $8,235.50(2)
due 2014
-----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 5,175,159 shares (3) (4) (4) (4)
par value per share
-----------------------------------------------------------------------------------------------------------------------
Guarantees of the 5 1/2% (5) -- -- (5)
Convertible Senior Notes due
2014
-----------------------------------------------------------------------------------------------------------------------
(1) Equals the aggregate principal amount of the notes being registered.
Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, as amended.
(2) A filing fee of $6,613.74 was paid by the Registrant on September 9,
2004 upon the initial filing of this Registration Statement, which
proposed to register $52,200,000 aggregate principal amount of our 5
1/2% convertible senior notes due 2014 and common stock issuable
upon conversion of the notes.
(3) The shares of common stock registered hereunder are issuable upon
conversion of the notes at the rate of 79.62 shares per $1,000
principal amount of notes (equivalent to a conversion price of
$12.56). Pursuant to Rule 416, there are also registered hereby the
shares of common stock or other securities that may be issuable upon
conversion of the notes as a result of a stock split, stock
dividend, recapitalization or similar event or adjustment in the
number of shares of common stock issuable as provided in the
indenture covering the notes.
(4) Pursuant to Rule 457(i), there is no additional filing fee with
respect to the shares of common stock issuable upon conversion of
the notes because no additional consideration will be received in
connection with the exercise of the conversion privilege.
(5) The notes registered hereby are the obligations of Empire Resorts,
Inc. and are guaranteed from the date of issuance by the
subsidiaries of Empire Resorts, Inc. listed on the "Table of
Guarantors" on the following page and each other subsidiary that
becomes a guarantor of the securities registered hereby. Pursuant to
Rule 457(n) under the Securities Act, there is no additional filing
fee with respect to the guarantees. The guarantees will not be
traded separately.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
ii
TABLE OF GUARANTORS
The principal executive office of each registrant below is located at c/o
Monticello Raceway, Route 17B, Monticello, New York 12701, telephone (845)
794-4100.
DEBTOR JURISDICTION OF ORGANIZATION EMPLOYER ID NO.
------ ---------------------------- ---------------
Alpha Monticello, Inc. Delaware 13-3901798
Alpha Casino Management Inc. Delaware 06-1589406
Monticello Casino Management, LLC New York 06-1589408
Mohawk Management, LLC New York 13-3930544
Monticello Raceway Development Company, LLC New York 14-1786128
Monticello Raceway Management, Inc. New York 14-1792148
iii
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SECURITYHOLDERS MAY NOT SELL THESE SECURITIES OR ACCEPT ANY OFFER TO BUY
THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 2004
PROSPECTUS
$65,000,000
EMPIRE RESORTS, INC.
5 1/2% CONVERTIBLE SENIOR NOTES DUE 2014 AND THE SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION OF THE NOTES
We issued the notes in a private placement on July 26, 2004. This
prospectus will be used by selling securityholders to resell their notes and the
common stock issuable upon conversion of their notes. We will not receive any
proceeds from this offering. The notes were issued in denominations of $1,000
and mature on July 31, 2014, unless earlier converted, redeemed or repurchased.
The notes were issued in registered book-entry form.
You may convert the notes into shares of our common stock in
accordance with the terms and conditions of the notes prior to their maturity or
their prior redemption or repurchase by us. The initial conversion rate is
72.727 shares of common stock per each $1,000 principal amount of notes, subject
to adjustment in certain circumstances. This conversion rate is equivalent to an
initial conversion price of approximately $13.75 per share.
We will pay cash interest on the notes on January 31 and July 31 of
each year. The first such payment will be made on January 31, 2005.
The notes are our senior obligations, ranking senior in right of
payment to all of our existing and future subordinated indebtedness and ranking
equally in right of payment with all our existing and future senior
indebtedness, and senior in right of payment to any of our future subordinated
indebtedness. The notes are guaranteed on a senior basis by all of our material
subsidiaries. The guarantee of each subsidiary guarantor is a senior obligation
of the guarantor, ranking senior in right of payment to all existing and future
subordinated indebtedness of our guarantors and ranking equally in right of
payment with any future senior indebtedness of such guarantor.
The notes are secured by substantially all of our and our
guarantors' tangible and intangible assets (other than certain excluded assets
described in this prospectus) and by a pledge of the equity interests of each of
our subsidiaries, in each case subject to certain permitted liens described in
this prospectus. The grant of a security interest in certain other collateral
and the pledge of the equity interests in certain other subsidiaries may require
us to obtain certain regulatory approvals under New York gaming and racing laws.
We have agreed to use our best efforts to cause the notes and guarantees to be
secured by all of our and our guarantors' additional tangible and intangible
assets and a pledge of all of the additional equity interests of each of our
subsidiaries. Additionally, we will use our best efforts to cause, on or prior
to April 22, 2005, if certain events have not yet occurred, the notes and the
guarantees to become secured by a mortgage on our land in Monticello, New York.
We may redeem for cash all or a portion of the notes on and after
July 31, 2007 but prior to July 31, 2009 at a redemption price equal to 100% of
the principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, thereon subject to the conditions described in this prospectus.
If we so redeem the notes, we will make an additional payment in cash equal to
the present value of all remaining scheduled payments of interest on the notes
to be redeemed through and including July 31, 2009. We may redeem for cash all
or a portion of the notes on or after July 31, 2009 at a redemption price equal
to 100% of the principal amount thereof, plus accrued and unpaid interest and
liquidated damages, if any, thereon.
Holders may require us to purchase all or part of their notes at a
purchase price of 100% of the principal amount of the notes plus accrued and
unpaid interest and liquidated damages, if any, on July 31, 2009.
There is no public market for the notes and we do not intend to
apply for listing of the notes on any securities exchange or for quotation of
the notes through any automated quotation system. The notes currently trade on
the Private Offerings, Resales and Trading through Automated Linkages Market,
commonly referred to as The PORTAL Market. However, once notes are sold under
this prospectus, these notes will no longer trade on The PORTAL Market. Our
common stock is traded on the Nasdaq Small Cap Market under the symbol "NYNY".
On September 29, 2004, the last reported closing price of our common stock on
the Nasdaq Small Cap Market was $7.49 per share.
INVESTING IN OUR NOTES AND COMMON STOCK INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is ______________________, 2004.
TABLE OF CONTENTS
Summary ..................................................................... 1
The Offering ................................................................ 5
Risk Factors ................................................................ 9
Special Note Regarding Forward Looking Statements ...................... 26
Use of Proceeds ............................................................. 26
Selling Securityholders ..................................................... 26
Plan of Distribution ....................................................... 30
Description of the Notes .................................................... 33
Description of Capital Stock ................................................ 72
Certain United States Federal Income Tax Consequences ....................... 77
Legal Matters ............................................................... 82
Experts ..................................................................... 82
Where You Can Find More Information ......................................... 82
i
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. BECAUSE THIS IS A SUMMARY, IT
MAY NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD
READ THIS PROSPECTUS CAREFULLY AND SHOULD CONSIDER, AMONG OTHER THINGS, THE
MATTERS DESCRIBED UNDER "RISK FACTORS" BEGINNING ON PAGE 9 BEFORE MAKING AN
INVESTMENT DECISION. UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES IN THIS
PROSPECTUS TO "THE COMPANY," "OUR COMPANY," "WE," "OUR," "US" AND SIMILAR
EXPRESSIONS REFER TO EMPIRE RESORTS, INC., A DELAWARE CORPORATION, AND ITS
PREDECESSORS AND ITS SUBSIDIARIES.
THE COMPANY
GENERAL
We operate Monticello Raceway, a harness horse racing facility
located in Monticello, New York, just 90 miles northwest of New York City. On
June 30, 2004, we began operating 1,744 video gaming machines on 45,000 square
feet of floor space at Monticello Raceway after completing approximately $27
million of renovations to the facility. Video gaming machines are popular gaming
devices that both look and feel like traditional slot machines and have aided
similarly situated racetracks in generating substantial new revenue streams. We
also have agreements with the Cayuga Nation of New York, a federally recognized
Native American tribe, to develop and manage its planned casino adjacent to
Monticello Raceway called the Cayuga Catskill Resort. As currently contemplated,
the Cayuga Catskill Resort will be an approximately $500 million project that
will include a Las Vegas-style casino with 3,000 slot machines and 200 table
games, all of which are expected to be so-called class III ("CLASS III") games
as defined in the Indian Gaming Regulatory Act of 1988. Development of the
project is pending various government approvals and financing. References to the
Cayuga Nation of New York are also intended to include, where applicable, a
reference to the Cayuga Catskill Gaming Authority, an organization created under
the laws of the Cayuga Nation of New York to operate the Cayuga Nation of New
York's gaming business.
THE PROPERTY
Monticello Raceway currently features:
o 1,744 video gaming machines;
o live harness horse racing;
o year-round simulcast pari-mutuel wagering on thoroughbred and
harness horse racing from across the country;
o a 5,000-seat grandstand and a 100-seat clubhouse with
retractable windows;
o parking spaces for 2,000 cars and 10 buses;
o a 350-seat buffet and food court with three outlets;
o a large central bar and an additional clubhouse bar; and
o an entertainment lounge with seating for 75 people.
The Cayuga Catskill Resort is expected to feature:
o 160,000 square feet of gaming space with 3,000 slot machines
and 200 table games, with sufficient space to accommodate an
additional 1,000 slot machines;
o separate bingo and poker areas;
o nine restaurants, including a buffet;
o several bars and a nightclub;
o 5,000 parking spaces, including 4,200 covered spaces all
located directly underneath or adjacent to the casino;
o an enclosed retail corridor connected to Monticello Raceway;
o a central entertainment lounge; and
o a 40,000 square foot multi-function room.
1
COMPETITIVE ADVANTAGES
We believe that our efforts to develop new gaming operations at
Monticello Raceway and the Cayuga Catskill Resort will be successful because the
site is 90 miles northwest of New York City, making it a shorter trip from the
nation's most populous metropolitan area than either Atlantic City or any
regional Native American casino, including Foxwoods and Mohegan Sun in
Connecticut. There are approximately 1.3 million adults living within 50 miles
of Monticello Raceway. In addition, roughly 18.4 million adults live within 100
miles of Monticello Raceway, an area where household income averages
approximately $76,000. Monticello Raceway is directly adjacent to Highway 17,
has highly visible signage and convenient access, and is less than 1,000 feet
from the highway's exit. There is no direct competition for our video gaming
machine operations within 85 miles of Monticello Raceway. However, Yonkers
Raceway and Aqueduct Raceway, two racetracks in New York City, propose
developing video gaming machine operations, and a number of prospective
competitors have expressed interest in sponsoring the development of Native
American casinos in the Monticello, New York area. Nevertheless, we believe that
we have a competitive advantage over each of these parties due to our site's
ease of access, our ability to offer horse racing and video gaming machines in
addition to regular casino gambling, and our belief that we and our partners are
considerably further along in the regulatory approval process than anyone else.
STRONG GAMING MARKET
The table below illustrates the strength of the northeastern United
States gaming market, with the Atlantic City casinos in New Jersey and Native
American casinos in Connecticut generating slot win of nearly $5 billion.
TOTAL GAMING WINS
-----------------
GAMING WIN PER
CASINO SLOTS TABLES WIN(1) SLOT WIN(1) SLOT PER DAY
------ ----- ------ --- -------- ------------
Foxwoods Casino 6,645 354(2) $ NA $ 791.0 $ 326
Mohegan Sun 6,164 295(3) 1,103.8(3) 822.4 365
Atlantic City Casinos (12) 38,703 1,227 4,701.6 3,468.4 284
SOURCE: ALL INFORMATION AS OF MAY 31, 2004 AND FROM THE STATE OF
CONNECTICUT DIVISION OF SPECIAL REVENUE AND NEW JERSEY CASINO CONTROL
COMMISSION, UNLESS OTHERWISE NOTED.
(1) FIGURES IN MILLIONS.
(2) MOST RECENT DATA FROM FOXWOODS CASINO'S WEBSITE.
(3) FOR THE LATEST TWELVE MONTHS ENDED MARCH 31, 2004 FROM MOHEGAN TRIBAL
GAMING AUTHORITY'S PUBLIC FILINGS.
The table below illustrates win per gaming device per day for
racetrack operations with video gaming machine operations, also known as
racinos, in the central and northeastern United States for which data is
publicly available. On average, a typical racino generates over $200 of win per
gaming device per day on nearly 2,000 gaming devices.
WIN PER AVERAGE
GAMING NUMBER OF
DEVICE(1) GAMING
RACINO PER DAY DEVICES(1) TOTAL WIN(2)
------ ------- ------- ---------
Lincoln, RI $330 2,307 $277.9
Prairie Meadows, IA 319 1,413 164.5
Charles Town, WV 264 3,353 323.1
Wheeling Downs, WV 244 2,098 186.8
Delaware Park, DE 312 2,153 245.2
Dover Downs, DE 226 2,121 175.1
Bluff's Run, IA 232 1,495 126.6
Mountaineer, WV 221 3,133 252.7
Newport, RI 205 982 73.6
Dubuque, IA 201 600 44.0
2
WIN PER AVERAGE
GAMING NUMBER OF
DEVICE(1) GAMING
RACINO PER DAY DEVICES(1) TOTAL WIN(2)
------ ------- ------- ---------
Harrington, DE 200 1,434 104.8
Tri-State, WV 121 1,532 67.7
Average $240 1,885 $170.2
SOURCE: FOR THE LATEST TWELVE MONTHS ENDED APRIL 2004 FROM INDIVIDUAL
STATE GAMING COMMISSIONS.
(1) THE TERM "GAMING DEVICES" IS INCLUSIVE OF BOTH SLOT MACHINES AND
VIDEO GAMING MACHINES.
(2) FIGURES IN MILLIONS.
OPERATIONS
We operate through three principal subsidiaries: Monticello Raceway
Management, Inc. ("MONTICELLO RACEWAY MANAGEMENT"), Monticello Casino
Management, LLC ("MONTICELLO CASINO MANAGEMENT") and Monticello Raceway
Development Company, LLC ("MONTICELLO RACEWAY DEVELOPMENT"). Currently, only
Monticello Raceway Management generates revenue, as the operations of our other
two subsidiaries are contingent upon the receipt of certain federal and state
regulatory approvals.
MONTICELLO RACEWAY MANAGEMENT
Monticello Raceway Management owns and operates Monticello Raceway.
Monticello Raceway began operations in 1958 and sits on 232 acres in the scenic
Catskill Mountains. Monticello Raceway provides year-round wagering on live
harness horse racing along with simulcast wagering from both harness and
thoroughbred racetracks across the country. Monticello Raceway also exports its
live races to gaming venues across the country in exchange for a percentage of
the amount wagered.
In January 2004, the New York State Lottery granted Monticello
Raceway Management a temporary license to install up to 1,800 video gaming
machines at Monticello Raceway, which license will become permanent following a
thorough background check of Monticello Raceway Management and its principals.
In February 2004, we completed a $30 million equity private placement, the net
proceeds of which allowed us to begin a $27 million renovation of Monticello
Raceway in order to install these video gaming machines under the name Mighty M
Gaming at Monticello Raceway. We substantially completed the renovations and
Mighty M Gaming at Monticello Raceway began operations on June 30, 2004.
Monticello Raceway Management also owns 232 acres of land
encompassing Monticello Raceway, subject to a land purchase agreement with the
Cayuga Nation of New York whereby the Cayuga Nation of New York has the right to
purchase 29 of the 232 acres for $10 million plus up to an additional $10
million for reimbursement of all pre-development and construction costs incurred
in connection with those 29 acres.
MONTICELLO CASINO MANAGEMENT
If the gaming facility management agreement signed by Monticello
Casino Management and the Cayuga Nation of New York is approved by the Chairman
of the National Indian Gaming Commission without modification from the form of
agreement last submitted for approval to the National Indian Gaming Commission,
Monticello Casino Management will have the exclusive right to manage, for the
Cayuga Nation of New York, for seven years all gaming and related activities
(other than Class II gaming) that may occur on those 29 acres of land that have
been set aside for sale to the Cayuga Nation of New York. Once required
government approvals are received to begin development of the Cayuga Catskill
Resort, we expect the Cayuga Catskill Resort to be built on these 29 acres. As
agreed to by the Cayuga Nation of New York, our management agreement entitles us
to receive 35% of all net revenues derived from the managed activities.
3
MONTICELLO RACEWAY DEVELOPMENT
Once the management agreement is approved, under a development
agreement with the Cayuga Nation of New York, Monticello Raceway Development
will have the exclusive right to design, engineer, develop, construct, and
furnish all casino style gaming (other than Class II gaming) on the 29 acres of
land that are intended for the Cayuga Catskill Resort. In exchange for these
services, Monticello Raceway Development will be entitled to receive a
development fee equal to 5% of the first $505 million of the project's costs.
Separately, Monticello Raceway Development intends to develop the surrounding
203 acres of land to provide for amenities supportive of gaming, such as
lodging, food service and retail. In this regard, each of us and certain of our
affiliates, together as a group, on the one hand, and the Cayuga Nation of New
York, on the other hand, agreed that for 10 years, each may participate in the
development or operation by the other of:
o one or more hotels, motels or other similar facilities providing
overnight accommodations including ancillary beverage, food,
entertainment, commercial and or retail services within a 15
mile radius of the 29 acres to be acquired by the Cayuga Nation
of New York under its land purchase agreement; and
o any other entertainment, sports and/or retail facility within a
5 mile radius of those 29 acres of land.
In each case, the non-developing party may purchase up to 33.33% of the equity
in the facility being developed, and the first hotel to be developed under this
arrangement will be the Cayuga Catskill Resort's preferred provider, obligating
the Cayuga Catskill Resort to refer its customers to that hotel.
RECENT DEVELOPMENTS
There are two significant preconditions that must be met before the
Cayuga Nation of New York can operate gaming at the Cayuga Catskill Resort.
First, title to the proposed 29 acre site must be transferred to the United
States and accepted into trust for the benefit of the Cayuga Nation of New York.
Second, the Cayuga Nation of New York must enter into a Class III gaming compact
with the State of New York. Two recent events bear favorably on the Cayuga
Nation of New York's ability to satisfy these requirements.
On April 27, 2004, the Eastern Regional Office of the Bureau of
Indian Affairs recommended approval of the Cayuga Nation of New York's
application requesting that the United States take the 29 acres into trust, and
also recommended that the Secretary of the Interior determine that the Cayuga
Catskill Resort project would not pose a significant impact to the human
environment. Before the site can be taken into trust for gaming purposes
pursuant to the Cayuga Nation of New York's request, however, the Secretary of
the Interior must give a final approval and the Governor for the State of New
York must concur in the Secretary's action.
On June 10, 2004, the State of New York entered into a non-binding
memorandum of understanding under which it is anticipated that the Cayuga Nation
of New York will settle the Cayuga Nation of New York's long-standing land claim
against the State of New York in exchange for a stated sum payable in
installments (the "MEMORANDUM OF UNDERSTANDING"). In addition, the Memorandum of
Understanding anticipates state and federal legislation resolving the litigation
and that the Cayuga Nation of New York and the State of New York will enter into
a Class III gaming compact on terms that are not yet specified for gaming that
is expected to occur on the 29 acre parcel after it has been taken into trust.
On August 19, 2004, we entered into a letter agreement (the
"Agreement") with The Seneca Cayuga Tribe of Oklahoma, a federally recognized
Native American tribe (the "Seneca Cayugas"), which provides for the development
of a trust land casino in the Catskills region of New York. The Agreement
provides for us to supply technical and financial assistance to the Seneca
Cayugas and to serve as the Seneca Cayugas' exclusive partner in the
development, construction, financing, operation and management of the proposed
casino. The Agreement is for a term of one year and was effective immediately.
The Agreement is expressly subject to our agreement with the Cayuga Nation of
New York that prevents us during its term from any discussions with respect to
property located in Sullivan County.
Our principal executive offices are located at c/o Monticello
Raceway, Route 17B, Monticello, NY 12701 and our telephone number is (845)
794-4100.
4
THE OFFERING
The following summary is not intended to be complete. For a more
complete description of the terms of the notes, see "Description of the Notes"
in this prospectus. All references under the heading "The Offering" in this
summary to "we," "our" or "us" refer only to Empire Resorts, Inc. and not to its
subsidiaries.
Issuer........................... Empire Resorts, Inc.
Securities Offered............... $65,000,000 aggregate principal amount of
our 5 1/2% convertible senior notes due
2014 and common stock issuable upon
conversion of the notes.
Maturity......................... July 31, 2014.
Interest Rate.................... The notes initially accrue interest at an
annual rate of 5 1/2%. In the event that
any of:
o publication in the Federal Register
of approval by the Secretary of the
Interior of a Class III gaming
compact for the Cayuga Catskill
Resort;
o written approval of a gaming facility
management agreement on behalf of the
chairman of the National Indian
Gaming Commission; or
o the land in Monticello, New York to
be used for the development of the
Cayuga Catskill Resort having been
transferred to the United States in
trust for the Cayuga Nation of New
York;
(the occurrence of all of the foregoing
events is herein referred to as the
"TRIGGER EVENT") shall have not occurred on
or prior to July 31, 2005, the notes will
accrue interest from and after July 31,
2005 at an annual rate of 8%. The interest
rate will return to 5 1/2% upon the
occurrence of the Trigger Event.
Interest Payment Dates.......... We will make interest payments
semi-annually in cash on each January 31
and July 31 of each year, beginning on
January 31, 2005.
Guarantees...................... The notes are guaranteed on a senior basis
by all of our subsidiaries other than our
immaterial subsidiaries.
Conversion...................... You may convert the notes into shares of
our common stock at any time prior to
maturity, redemption or repurchase by us.
The initial conversion rate is 72.727
shares per each $1,000 principal amount of
notes, subject to adjustment. This
conversion rate is equivalent to an initial
conversion price of $13.75 per share. Our
common stock is quoted on the Nasdaq Small
Cap Market under the symbol "NYNY." On
September 29, 2004, the closing bid price
for our common stock on the Nasdaq Small
Cap Market was $7.49 per share. In the
event that you convert the notes prior to
July 31, 2007, we will be required to make
an additional make-whole payment equal to
the present value of all remaining
scheduled payments of interest on the notes
to be so converted through and including
July 31, 2007, assuming for such purpose
that the interest rate in effect as of the
conversion date shall apply for all
subsequent interest periods through July
31, 2007. Any make-whole payment will be
payable to you in cash or, at our option,
in shares of our common stock at a 5%
discount to the average closing bid price
of our common stock for the 10 trading days
prior to the conversion date.
5
If the Trigger Event has not occurred on or
prior to July 31, 2005, the initial
conversion rate per each $1,000 principal
amount of notes shall be reset based on a
15% premium to the average closing bid
price of our common stock for the prior 10
trading days, PROVIDED, HOWEVER, that the
new initial conversion rate shall not
reflect an initial conversion price in
excess of $13.75 or less than $12.56 per
share.
Ranking and Security............ The notes are our senior obligations, rank
senior in right of payment to all of our
existing and future subordinated
indebtedness and rank PARI PASSU in right
of payment with all of our existing and
future senior indebtedness. As of September
30, 2004, we had no senior unsecured
indebtedness and, other than the notes, no
secured indebtedness.
The guarantees are senior obligations of
our guarantors, rank senior in right of
payment to all existing and future
subordinated indebtedness of our guarantors
and rank PARI PASSU in right of payment
with all existing and future senior
indebtedness of our guarantors. As of
September 30, 2004, our guarantors had no
indebtedness.
We have caused the notes to be secured by
substantially all of our and our
guarantors' tangible and intangible assets
(other than our 232 acres of land in
Monticello, New York, our rights under the
gaming facility management agreement with
the Cayuga Nation of New York and certain
excluded assets) and by a pledge of the
equity interests of each of our
subsidiaries (with such pledge of the
equity interests in Monticello Casino
Management being released to the extent
required to obtain approval from the
National Indian Gaming Commission of our
gaming facility management agreement with
the Cayuga Nation of New York ), in each
case subject to permitted liens. The grant
of a security interest in certain other
collateral and the pledge of the equity
interests in certain other subsidiaries may
require us to obtain certain regulatory
approvals under New York gaming and racing
laws. We have agreed to use our best
efforts to cause the notes and guarantees
to be secured by all of our and our
guarantors' additional tangible and
intangible assets and a pledge of all of
the additional equity interests of each of
our subsidiaries. Additionally, we will use
our best efforts to cause, on or prior to
April 22, 2005, if the Trigger Event shall
have not yet occurred, the notes and the
guarantees to become secured by a mortgage
on our 232 acres of land in Monticello, New
York (with such mortgage being released
with respect to the site of the Cayuga
Catskill Resort as required to transfer
such site into trust with the United
States). The indenture governing the notes
permits us to incur up to $10.0 million of
secured indebtedness under a new secured
credit facility. Our obligations under such
new senior secured credit facility will be
secured by a lien on certain of our and our
guarantors' assets, which assets may
include the collateral securing the notes
and the guarantees, and such lien will be
prior to the lien on the collateral
securing the notes and the guarantees. From
and after the occurrence of the Trigger
Event, all of the collateral securing the
notes and the guarantees will be released,
6
and the notes and the guarantees will
become our and our guarantors' unsecured
obligations, and will become effectively
subordinated to all of our and our
guarantors' then existing and future
secured indebtedness.
Upon the occurrence of the Trigger Event,
the indenture governing the notes will
permit us and our guarantors to incur up to
an additional $150.0 million of additional
indebtedness or any amount of additional
indebtedness such that our consolidated
fixed charge coverage ratio will be, after
giving effect to the incurrence thereof,
greater than 2 to 1, which indebtedness may
be secured by our and our guarantors'
assets.
Optional Redemption............. On and after July 31, 2007 but prior to
July 31, 2009, we may, at our option,
redeem some or all of the notes for cash at
a redemption price equal to 100% of the
principal amount thereof, plus accrued and
unpaid interest and liquidated damages, if
any, thereon, only if the last reported bid
price of our common stock has exceeded 150%
of the conversion price then in effect for
at least 20 trading days during the 30
consecutive trading day period ending on
the trading day prior to the date on which
we mail the notice of redemption. If we so
redeem the notes, we will make an
additional payment in cash equal to the
present value of all remaining scheduled
payments of interest on the notes to be
redeemed through and including July 31,
2009. On or after July 31, 2009, we may, at
our option, redeem some or all of the notes
for cash at a redemption price equal to
100% of the principal amount thereof, plus
accrued and unpaid interest and liquidated
damages, if any, thereon.
Repurchase at the Option of
the Holder.................. You may require us to repurchase the notes,
in whole or in part, on July 31, 2009 at a
price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest
and liquidated damages, if any, thereon.
Change of Control Offer......... If we experience a specified change of
control, you will have the right to either
require us to repurchase your notes at a
price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest
and liquidated damages, if any, thereon or,
in the event at least 90% of the
consideration received in connection with
such change of control is comprised of cash
or cash equivalents, elect to receive a
make-whole payment, in the amounts set
forth in this prospectus, in lieu of
requiring such repurchase.
Regulatory Redemption........... The notes will be subject to mandatory
disposition and redemption requirements
following certain determinations by any
gaming or racing authority.
Registration Rights............. Pursuant to a registration rights agreement
that we entered into in connection with the
private offering of the notes in July 2004,
we have filed a shelf registration
statement under the Securities Act of 1933,
as amended (the "SECURITIES ACT") relating
to the resale of the notes and the common
stock issuable upon conversion of the
notes. This prospectus constitutes a part
of that registration statement. We filed
the shelf registration statement solely to
permit the resale of notes issued in the
July 2004 private offering and shares of
common stock issued upon conversion of
7
those notes, and investors who purchase
notes or shares of common stock from
selling securityholders in this offering
will not be entitled to any registration
rights under the registration rights
agreement. In addition, under the
registration rights agreement, selling
securityholders may be required to
discontinue the sale or other disposition
of notes and shares of common stock issued
upon conversion of notes pursuant to the
shelf registration statement and to
discontinue the use of this prospectus
under certain circumstances specified in
the registration rights agreement.
Public Market................... There is no public market for the notes and
we do not intend to apply for listing of
the notes on any securities exchange or for
quotation of the notes through any
automated quotation system. The notes
currently trade in the PORTAL Market.
However, once the notes are sold under this
prospectus, those notes will no longer
trade in the PORTAL Market. No assurance
can be given that a trading market for the
notes will exist or as to the liquidity of
any trading market for the notes that may
exist.
Listing......................... Our common stock is listed on the Nasdaq
Small Cap Market under the symbol "NYNY."
Use of Proceeds................. The selling securityholders will receive
all of the net proceeds from the sale of
the notes or shares of common stock issued
upon conversion of the notes. We will not
receive any of the proceeds from the sale
of any of these securities.
For more information about the notes, see "Description of the
Notes."
RISK FACTORS
Before making an investment in the notes, you should consider
carefully the information included in the "Risk Factors" section, as well as all
other information in this prospectus.
8
RISK FACTORS
AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER
INFORMATION IN THIS PROSPECTUS, INCLUDING UNDER "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS," BEFORE MAKING AN INVESTMENT IN THE NOTES.
RISKS RELATED TO OUR BUSINESS
IF OUR VIDEO GAMING MACHINES AT MONTICELLO RACEWAY DO NOT INCREASE OUR REVENUES
AND OPERATING INCOME, IF LEGISLATION AUTHORIZING OUR VIDEO GAMING OPERATIONS IS
ULTIMATELY HELD TO BE UNCONSTITUTIONAL OR IF THE CAYUGA CATSKILL RESORT IS NOT
SUCCESSFULLY DEVELOPED, IT COULD ADVERSELY AFFECT OUR NET REVENUES AND THE
ABILITY TO MAKE PAYMENTS ON THE NOTES.
Our ability to generate revenues and to make payments on the notes
will depend on our ability to generate cash flow from our current and future
operations. Our ability to generate sufficient cash flow will largely depend on
the success of the 1,744 video gaming machines that we recently installed as
part of our renovation of Monticello Raceway's grandstand building and our
ability to successfully develop and manage for the Cayuga Nation of New York the
Cayuga Catskill Resort. With respect to our video gaming machine operations, on
July 7, 2004, the Appellate Division of the Supreme Court of the State of New
York ruled that the legislation permitting state sponsored video gaming machine
operations is unconstitutional under New York law because such legislation
provides that a portion of the video gaming machine vendor fees be dedicated to
breeding funds and enhancing purses in violation of a constitutional mandate
that such moneys be applied exclusively to, or in aid or support of, education
in the State of New York. While the State of New York has filed a notice of
appeal to appeal this ruling, which notice of appeal stays the decision and
allows us to continue operating video gaming machines, there can be no assurance
that the State of New York will ultimately prevail or, alternatively, that the
authorizing legislation will be amended in order for it to be constitutional. If
the appellate court's findings are ultimately upheld and the state legislature
fails to enact corrective legislation, we would be forced to shutter our video
gaming machines and our operations would be limited to the pari-mutuel
operations of Monticello Raceway and the proposed development and management of
the Cayuga Catskill Resort. See "Risk Factors - Risks Related to Our Business -
Pending lawsuits could threaten the viability of our business plan" beginning on
page 15.
In addition to ruling on the permitted use of net lottery revenues,
the court separately held that video gaming machines are valid, state operated
lotteries and, thus, fall within the exemption of lotteries from the general ban
on gambling in the State of New York. We cannot assure you that the plaintiffs
in the underlying litigation will not appeal this portion of the Appellate
Division's ruling. Should an appeal of such ruling be instituted, we cannot
assure you that the New York Court of Appeals will uphold the Appellate
Division's validation of this portion of the legislation.
Even assuming that the ultimate outcome of these court proceedings
permits us to continue operating video gaming machines at Monticello Raceway as
presently conducted, there can be no assurance that the video gaming machine
program at Monticello Raceway will draw sufficiently large crowds to Monticello
Raceway so as to increase local wagering to the point that we will realize a
profit from the initial video gaming machine installation. The operations and
placement of our video gaming machines, including the layout and distribution,
are under the jurisdiction of the New York State Lottery and the program
contemplates that a significant share of the responsibility for marketing the
program will be borne by the New York State Lottery. The New York State Lottery
may make decisions that we feel are not in our best interest and, as a
consequence, the profitability of our video gaming machine operations may not
reach the levels that we originally anticipated or may be slower than expected
in reaching those levels. Legislative changes made as a result of the court
proceedings could also alter the economics of our operations. Furthermore, the
legislation authorizing the implementation of video gaming machines at
Monticello Raceway expires in 2013, prior to maturity of the notes, and no
assurance can be given that the authorizing legislation will be extended beyond
this period. Similarly, the development of the Cayuga Catskill Resort is subject
to many regulatory, competitive, economic and business risks beyond our control,
and there can be no assurance that it will be developed in a timely manner, or
at all. Any failure in this regard could have a material adverse impact on our
operations, our ability to service our debt obligations and our ability to
generate net income.
9
AS A HOLDING COMPANY, WE ARE DEPENDENT ON THE OPERATIONS OF OUR SUBSIDIARIES TO
PAY DIVIDENDS OR MAKE DISTRIBUTIONS IN ORDER TO GENERATE INTERNAL CASH FLOW.
We are a holding company with no revenue generating operations,
owning all the capital stock or membership interests, as the case may be, of
Monticello Raceway Management, Monticello Casino Management and Monticello
Raceway Development. Consequently, our ability to make payments on the notes and
to make any dividend or distribution on the shares of our common stock issuable
upon conversion of the notes are dependent on the earnings and the distribution
of funds from these subsidiaries. There can be no assurance that these
subsidiaries will generate enough revenue to pay cash dividends or make cash
distributions to us in an amount necessary for us to satisfy our obligations
under the notes or to make dividends or distributions upon the shares of our
common stock issuable upon conversion of the notes. In addition, these
subsidiaries may enter into contracts that limit or prohibit their ability to
pay dividends or make distributions. Should our subsidiaries be unable to pay
dividends or make distributions, our ability to meet our ongoing obligations
would be jeopardized. Specifically, without the payment of dividends or the
making of distributions, we would be unable to pay our employees, accounting
professionals or legal professionals, all of whom we rely on to manage our
operations, ensure regulatory compliance and sustain our public company status.
CHANGES IN THE LAWS, REGULATIONS, AND ORDINANCES (INCLUDING TRIBAL AND/OR LOCAL
LAWS) TO WHICH THE GAMING INDUSTRY IS SUBJECT, AND THE APPLICATION OF EXISTING
LAWS AND REGULATIONS, OR OUR INABILITY OR THE INABILITY OF OUR KEY PERSONNEL,
SIGNIFICANT STOCKHOLDERS, OR JOINT VENTURE PARTNERS TO OBTAIN OR RETAIN REQUIRED
GAMING REGULATORY LICENSES, COULD PREVENT THE COMPLETION OF OUR CURRENT CASINO
DEVELOPMENT PROJECTS, PREVENT US FROM PURSUING FUTURE DEVELOPMENT PROJECTS OR
OTHERWISE ADVERSELY IMPACT OUR RESULTS OF OPERATION.
The ownership, management and operation of gaming facilities are
subject to extensive federal, state, provincial, tribal and/or local laws,
regulations and ordinances that are administered by the relevant regulatory
agency or agencies in each jurisdiction. These laws, regulations and ordinances
vary from jurisdiction to jurisdiction, but generally concern the
responsibility, financial stability and character of the owners and managers of
gaming operations as well as persons financially interested or involved in
gaming operations, and often require such parties to obtain certain licenses,
permits and approvals. These laws, regulations and ordinances may also affect
the operations of our gaming facilities.
The rapidly-changing political and regulatory environment governing
the gaming industry (including gaming operations which are conducted on Native
American land) makes it impossible for us to accurately predict the effects that
an adoption of, changes in or application of the gaming laws, regulations and
ordinances will have on us. However, our failure or the failure of any of our
key personnel, significant stockholders or joint venture partners, to obtain or
retain required gaming regulatory licenses could prevent us from operating our
existing gaming enterprises like Monticello Raceway or expanding into new
markets, prohibit us from generating revenues in certain jurisdictions, and
subject us to sanctions and fines.
SHOULD WE OR ANY OF OUR STOCKHOLDERS BE FOUND UNSUITABLE BY ANY FEDERAL, STATE,
REGIONAL OR TRIBAL GOVERNMENTAL BODY TO OWN AN INTEREST IN A GAMING OPERATOR, WE
OR SUCH STOCKHOLDER COULD BE FORCED TO DIVEST OUR HOLDINGS IN SUCH GAMING
OPERATOR IN A SHORT PERIOD OF TIME AT BELOW MARKET PRICES.
As discussed above, we and certain of our principal stockholders are
required to be licensed or otherwise approved in each jurisdiction in which we
own, directly or indirectly, a significant ownership interest in a gaming
operator. These licenses generally expire after a relatively short period of
time and thus require frequent renewals and reevaluations. Obtaining these
licenses in the first place, and for purposes of renewals, normally involves
receiving a subjective determination of "suitability." A finding of
unsuitability could lead to a material loss of investment by either us or our
stockholders, as it would require divestiture of one's direct or indirect
interest in a gaming operator that conducts business in the licensing
jurisdiction. Consequently, should we or any stockholder ever be found to be
unsuitable by the federal government, the State of New York or the Cayuga Nation
of New York to own a direct or indirect interest in a company with gaming
operations, we or such stockholder, as the case may be, could be forced to
liquidate all interests in that entity. Should either of us be forced to
liquidate these interests within a relatively short period of time, we or such
stockholder would likely be forced to sell at a discount, causing a material
loss of investment value.
10
SEVERAL OF OUR FORMER OFFICERS AND DIRECTORS HAVE BEEN INDICTED OR CONVICTED ON
FRAUD CHARGES, AND OUR SUITABILITY DETERMINATION TO PARTICIPATE IN GAMING
ACTIVITIES COULD ACCORDINGLY BE ADVERSELY AFFECTED.
During 2002, certain affiliates of Bryanston Group, Inc. ("BRYANSTON
GROUP"), our former largest stockholder, and six of our former officers and
directors were indicted for various counts of tax and bank fraud. On September
5, 2003, one of these former directors pleaded guilty to felony tax fraud, and
on February 4, 2004, four additional former officers and directors were
convicted of tax and bank fraud. In December 2002, we entered into an agreement
with Bryanston Group and certain of these individuals pursuant to which we
acquired a three year option to repurchase their shares of our common stock.
This option was exercised on January 9, 2004 by issuing a promissory note to
Bryanston Group in exchange for our common stock, which note was retired on July
26, 2004. While none of the acts these individuals were charged with or
convicted of relate to their former positions with or ownership interests in us,
there can be no assurance that none of the various governmental agencies that
now, or in the future may, regulate and license our gaming related activities
will factor in these indictments in evaluating our suitability. Should a
regulatory agency fail to acknowledge that these indictments and convictions do
not relate to our operations, we could lose our gaming licenses or be forced to
liquidate certain or all of our gaming interests.
THE GAMING INDUSTRY IN THE NORTHEASTERN UNITED STATES IS HIGHLY COMPETITIVE,
WITH MANY OF OUR COMPETITORS BETTER KNOWN AND BETTER FINANCED THAN US.
The gaming industry in the northeastern United States is highly
competitive and increasingly run by multinational corporations that enjoy
widespread name recognition, established brand loyalty, decades of casino
operation experience and a diverse portfolio of gaming assets. Atlantic City,
the second most popular gaming destination in the United States, with more than
10 full service hotel casinos, is only a two hour drive from New York City, the
highly popular Foxwoods Resort and Casino and the Mohegan Sun casino are each
only two and a half hour drives from New York City and Caesars Entertainment,
Inc., the world's largest gaming conglomerate, and Trading Cove Associates,
Inc., the developers of the Mohegan Sun casino, are each planning to develop
Native American casinos on properties that neighbor Monticello Raceway.
Additionally, on July 4, 2004, the State of Pennsylvania enacted a law allowing
for the operation of up to 61,000 slot machines at 14 gambling halls, including
seven racetracks, five stand-alone parlors, and two resorts. Pursuant to this
new law, slot machine facilities could be developed within 30 miles of
Monticello Raceway that compete directly with our video gaming machines.
Moreover, a number of well financed Native American tribes and gaming
entrepreneurs are presently seeking to develop casinos in New York and
Connecticut in areas that are 90 miles from New York City such as Bridgeport,
Connecticut and Southampton, New York. In contrast, we have limited financial
resources and are presently limited to the operation of a harness horse racing
facility and video gaming machines in Monticello, New York and are a one and a
half hour drive from New York City. No assurance can be given that we will be
able to compete successfully with the established Atlantic City casinos,
existing and proposed regional Native American casinos, slot machine facilities
in Pennsylvania or the casinos proposed to be developed by Caesars
Entertainment, Inc. and Trading Cove Associates, Inc. in the Catskills region
for local gaming customers.
BECAUSE OF THE UNIQUE STATUS OF NATIVE AMERICAN TRIBES, GENERALLY, AND THE
GOVERNANCE STRUCTURE OF THE CAYUGA NATION OF NEW YORK, IN PARTICULAR, OUR
ABILITY TO SUCCESSFULLY DEVELOP AND MANAGE THE CAYUGA CATSKILL RESORT WILL BE
SUBJECT TO UNIQUE RISKS.
We have no experience in managing or developing Native American
casinos, which present unique challenges. Native American tribes are governments
and possess the inherent power to adopt laws and regulate matters within their
jurisdiction. For example, tribes are generally immune from suit and other legal
processes unless they waive such immunity. Gaming at the Cayuga Catskill Resort
will be operated on behalf of the Cayuga Nation of New York's government, and
that government is subject to changes in leadership or governmental policies,
varying political interests, and pressures from the Cayuga Nation of New York's
individual members, any of which may conflict with our interests. Thus, disputes
between ourselves and the Cayuga Nation of New York may arise. With respect to
disputes concerning our gaming facility management agreement and development
agreement with the Cayuga Nation of New York, the Cayuga Nation of New York has
waived its sovereign immunity, although if for any reason that waiver should be
ineffective, we might be unable to enforce our rights under those agreements as
against the Cayuga Nation of New York. Also, it is possible that we might be
required to seek enforcement of our rights in a court or other dispute
resolution forum of the Cayuga Nation of New York, instead of state or federal
courts or arbitration. As discussed below, until our proposed amended and
11
restated gaming facility management agreement has been approved by the National
Indian Gaming Commission, and as amended and restated, approved by the Cayuga
Nation of New York, that agreement will not be valid or binding on the Cayuga
Nation of New York, and, by their terms and under relevant federal court
precedent, it is likely that some or all of the provisions of our other
agreements with the Cayuga Nation of New York are also inoperative until the
gaming facility management agreement has been approved by the National Indian
Gaming Commission.
The Cayuga Nation of New York has about 500 members, each belonging
to one of four remaining clans, with clan membership determined by matrilineal
succession. The Cayuga Nation of New York has not enjoyed a reservation or other
land base for more than two hundred years, and has no written constitution or
other governing documents. Instead, the Cayuga Nation of New York follows oral
traditions, customs and practices, including a centuries old "Great Law," and is
governed by a Council of Chiefs, Representatives and Clan Mothers (the
"COUNCIL"). Only two of the four clans in existence have a Clan Mother, one clan
is currently in the process of selecting a Clan Mother, and another clan can no
longer designate a Clan Mother because there are no full-blooded women members
of that clan. Each Clan Mother is responsible for selecting (and in certain
cases removing) two full blood men from among her Clan's members to serve a
life-long term as representatives on the Council. The Council may act only by
consensus at a meeting, with unanimous consent from those representatives in
attendance. The Council presently does not have regularly scheduled meetings,
and has no prior experience with gaming or any other substantial business
undertaking other than the Cayuga Catskill Resort. Accordingly, we could
encounter delays or other difficulties in dealing with matters that require
action by the Cayuga Nation of New York's government, including approvals of
desirable courses of action, contracts or contract modifications, which in turn
could adversely affect our successful development and management of the Cayuga
Catskill Resort.
Finally, Native American gaming is governed by unique laws,
regulations and requirements arising from the Indian Gaming Regulatory Act of
1988, as amended, the applicable Class III gaming compact, and gaming laws of
the applicable Native American tribe, and certain federal Indian law statutes or
judicial principles. A number of examples exist where Native American tribes
have successfully voided development or management-related contracts with
non-native parties because of these unique Native American aspects. For all of
the foregoing and other reasons, we may encounter difficulties in successfully
developing and managing the Cayuga Catskill Resort. Several companies with
gaming experience that have tried to become involved in the management and/or
development of Native American casinos have been unsuccessful. Due to our
limited Native American gaming experience, no assurance can be given that we
will be able to avoid the pitfalls that have befallen other companies in order
to create a successful gaming operation at the Cayuga Catskill Resort.
A TRANSFER OF THE PROPOSED CASINO SITE TO THE UNITED STATES, TO BE HELD IN TRUST
FOR THE BENEFIT OF THE CAYUGA NATION OF NEW YORK MIGHT NOT OCCUR OR MAY BE
DELAYED FOR A SUBSTANTIAL PERIOD OF TIME; AND UNTIL SUCH A TRANSFER OCCURS, IT
WILL NOT BE POSSIBLE FOR THE CAYUGA NATION OF NEW YORK TO OPERATE A CASINO AT
THE CAYUGA CATSKILL RESORT FOR US TO MANAGE.
Under the Indian Gaming Regulatory Act of 1988, the Cayuga Nation of
New York will be able to operate a casino at the Cayuga Catskill Resort only if
the casino is located on land held by the United States in trust for the Cayuga
Nation of New York (or subject to similar restrictions on transfer), and only if
the Cayuga Nation of New York exercises governmental powers over the casino
site. That same Act, however, generally prohibits Native American casinos on
land transferred into trust after October 17, 1988. An exception to this trust
land limitation is being pursued by the Cayuga Nation of New York, without an
assurance that it will be obtained.
One exception available for land transferred after October 17, 1988,
is that if, after consultation with the tribe and applicable state, local and
other nearby tribal officials, the Secretary of the Interior (who acts through
the Bureau of Indian Affairs) determines that a gaming establishment on the land
proposed for transfer would be in the best interest of the tribe and its
members, and would not be detrimental to the surrounding community, provided
that the Governor of the applicable State must concur. To date the instances are
very limited where this exception has been successful for off-reservation land.
Furthermore, historically the Bureau of Indian Affairs has been reluctant to
support accepting land into trust that is located a substantial distance from
the reservation of a tribe, and in the case of the Cayuga Nation of New York,
the site of the Cayuga Catskill Resort is a substantial distance from land
recognized to be a part of the original reservation of the Cayuga Nation of New
York. Nevertheless, on April 27, 2004, the Eastern Regional Office of the Bureau
of Indian Affairs recommended approval of the Cayuga Nation of New York's
request that the United States accept the proposed casino site into trust for
the benefit of the Cayuga Nation of New York. Final approval from the Secretary
12
of the Interior is still required, and the Secretary of the Interior is not
required to give deference to the Eastern Regional Office of the Bureau of
Indian Affairs' decision. Additionally, the Governor for the State of New York
must concur with any favorable determination by the Secretary of the Interior,
and the Governor's office has expressed reluctance to concur as long as a
substantial land claim by the Cayuga Nation of New York against the State of New
York remains unsettled.
If the 29 acres that we propose to transfer to the United States, to
be held in trust for the benefit of the Cayuga Nation, are not in fact
transferred, we will not be able to execute our current business plan of
developing and managing a casino for the Cayuga Nation of New York.
OUR GAMING FACILITY MANAGEMENT AGREEMENT AND DEVELOPMENT AGREEMENT WITH THE
CAYUGA NATION OF NEW YORK ARE NOT VALID OR EFFECTIVE UNTIL SUCH GAMING FACILITY
MANAGEMENT AGREEMENT IS APPROVED BY THE NATIONAL INDIAN GAMING COMMISSION, AND
THAT APPROVAL MIGHT NOT BE OBTAINED OR MIGHT BE OBTAINED ONLY AFTER WE AGREE TO
MODIFY TERMS THAT HAVE ALREADY BEEN AGREED TO BY THE CAYUGA NATION OF NEW YORK
THAT REDUCE OUR REVENUES UNDER THE AGREEMENTS OR OTHERWISE ADVERSELY AFFECT US.
No management contract for tribally operated Class II or Class III
gaming is valid until approved by the National Indian Gaming Commission, and
under current case law in New York, an agreement collateral to a management
contract, such as our development agreement, is likewise not valid until so
approved. The National Indian Gaming Commission has broad discretion to approve
or reject proposed management contracts, and by law the National Indian Gaming
Commission can approve management fees exceeding 30% of related net gaming
revenues only if the Chairman of the National Indian Gaming Commission is
satisfied that the capital investment required, and income projections, require
the additional fee. The Cayuga Nation of New York has agreed to pay us a 35%
management fee, and as well as other compensation under the development
agreement. Monticello Casino Management's gaming facility management agreement
with the Cayuga Nation of New York has been under review by the National Indian
Gaming Commission for over one year. On January 21, 2004, the National Indian
Gaming Commission issued its first objection letter, and in April 2004, we
submitted partial responses to these objections, including a revised gaming
facility management agreement, that has not yet been executed or otherwise
formally approved by the Cayuga Nation of New York, but which we expect will be
acceptable to the Nation. No assurance can be given that the National Indian
Gaming Commission will approve the gaming facility management agreement or that
further modifications to such agreement or the development agreement will not be
required prior to the National Indian Gaming Commission granting approval. Such
modifications could include a material reduction in the management fee or other
compensation we have negotiated with the Cayuga Nation of New York. As amended,
and approved by the National Indian Gaming Commission, the gaming facility
management agreement will require formal approval by the Cayuga Nation of New
York before it becomes effective. We expect, but cannot guarantee, that the
Cayuga Nation of New York will approve the gaming facility management agreement
as it is amended in order to obtain approval from the National Indian Gaming
Commission.
COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS COULD SUBSTANTIALLY DELAY OR, IN THE
EXTREME, PREVENT OUR DEVELOPMENT OF THE CAYUGA CATSKILL RESORT.
The National Environmental Policy Act requires federal agencies to
consider the environmental impacts of activities they perform, fund, or permit,
as well as alternatives to those activities and ways to mitigate or lessen those
impacts. Under the National Environmental Policy Act, federal agencies must
prepare an environmental assessment to determine whether the proposed action
will have a significant effect on the quality of the environment. If the agency
determines that the action will not have a significant effect on the
environment, it issues a finding of no significant impact, and the project can
move forward; if the agency finds to the contrary, it must then prepare an
environmental impact statement, detailing the environmental impacts,
alternatives, and mitigation measures.
For the Cayuga Catskill Resort to be developed, there are at least
two major federal actions that will require compliance with the National
Environmental Policy Act: (1) the Secretary of the Interior's decision to take
the 29 acre site into trust for the benefit of the Cayuga Nation of New York,
and (2) the National Indian Gaming Commission's approval of our gaming facility
management agreement. After reviewing the environmental assessment prepared for
this project, the Eastern Regional Office of the Bureau of Indian Affairs
recommended, in April, 2004, that the Secretary of the Interior find that taking
the 29 acre site into trust for the benefit of the Cayuga Nation of New York
would not have a significant effect on the environment, and therefore, a finding
of no
13
significant impact should be issued. This recommendation is not binding on the
Secretary of the Interior or the National Indian Gaming Commission. The
Secretary of the Interior and the National Indian Gaming Commission may accept
or reject such recommendation, and a risk exists that in light of recent
positions taken by the Department of Justice, preparation of an environmental
impact statement may be required, which could delay the project. In any event,
even if a finding of no significant impact is issued, a risk exists that parties
opposed to the Cayuga Catskill Resort project will commence litigation
challenging the issuance of the finding of no significant impact, thereby
delaying or preventing the project.
A CLASS III GAMING COMPACT BETWEEN THE CAYUGA NATION OF NEW YORK AND THE STATE
OF NEW YORK MUST BE NEGOTIATED AND BECOME EFFECTIVE BEFORE THE CAYUGA NATION OF
NEW YORK CAN OPERATE A CASINO FOR US TO MANAGE.
The Cayuga Nation of New York cannot lawfully engage in Class III
gaming unless the Cayuga Nation of New York and the Governor for the State of
New York execute a Class III gaming compact that is approved or deemed approved
by the Secretary of the Interior. Although courts have invalidated two other
Class III gaming compacts between New York tribes and the State of New York due
to lack of legislative authority, the Governor has received requisite
legislative authorization to enter into a Class III gaming compact with the
Cayuga Nation of New York at the site of the Cayuga Catskill Resort. Under the
non-binding terms of the Memorandum of Understanding, the Cayuga Nation of New
York and the State of New York agreed to negotiate and enter into a gaming
compact that will authorize Class III gaming at the site of the Cayuga Catskill
Resort once the 29 acre site has been taken into trust by the United States for
the benefit of the Cayuga Nation of New York. The terms of this gaming compact
are not specified in the Memorandum of Understanding, and a draft of the
proposed compact has not been submitted by either the State of New York or the
Cayuga Nation of New York to the other for consideration. We expect the State of
New York to propose terms for a compact similar to those found in the compact
between the State of New York and the Seneca Nation. That compact obligates the
Seneca Nation to make payments to the State of New York in amounts of up to 25%
of that nation's net slot revenues. There is no assurance that the State of New
York and the Cayuga Nation of New York will reach an agreement upon the terms of
any revenue sharing arrangement or any other terms that will result in a compact
for Class III gaming. In addition, the State of New York has refused in the past
to negotiate a gaming compact with the Cayuga Nation of New York so long as its
land claim lawsuit remained unsettled, and therefore, if the land claim lawsuit
is not settled as contemplated by the Memorandum of Understanding, the State of
New York may refuse to enter into a gaming compact with the Cayuga Nation of New
York.
If the State of New York and the Cayuga Nation of New York reach
agreement and execute a compact for Class III gaming, under the Indian Gaming
Regulatory Act of 1988, that compact does not become effective until an approval
of the compact by the Secretary of the Interior has been published in the
Federal Register. Additionally, the compact could become effective, but only to
the extent it is consistent with the Indian Gaming Regulatory Act of 1988, upon
publication of a notice in the Federal Register that forty-five days have
elapsed after the compact was submitted for approval to the Secretary of the
Interior and the Secretary of the Interior neither approved nor disapproved the
compact. No assurance can be given that the Secretary of the Interior will
approve the terms of any compact agreed to by the Cayuga Nation of New York and
the State of New York. In particular, the existence of revenue sharing
provisions in a compact by which a state receives a share of tribal gaming
revenues has provided a basis for the Secretary of the Interior to disapprove a
compact. The Indian Gaming Regulatory Act of 1988 generally prohibits a state
from imposing a tax on tribes for the privilege of conducting gaming in the
state. The Seneca Nation-State of New York gaming compact was neither approved
nor disapproved within the required 45-day period, and therefore became
effective upon publication of a notice in the Federal Register. In the letter to
the Seneca Nation and the Governor of New York, the Secretary of the Interior
stated that the State of New York's right to receive up to 25% of gross gaming
revenues was primarily based on the State of New York's grant of an extensive
area in which the Seneca would have broad exclusive gaming rights. Because the
precise terms of a compact between the Cayuga Nation of New York and the State
of New York have not been formally proposed, let alone agreed upon, there can be
no assurance that the Secretary of the Interior will approve the future terms of
such a compact. If the Secretary of the Interior disapproves any agreed upon
compact, the compact will not become effective and the Cayuga Nation of New York
will not be able to conduct gaming under its terms. Since 2003, a bill has been
pending in Congress that would limit a State's right to share in a tribe's
gaming revenues unless the State provided the tribe a "substantial economic
benefit." We cannot predict if this or other legislation will be enacted or, if
enacted, would prevent a gaming compact between the Cayuga Nation of New York
and the State of New York.
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IF FUNDS FROM THE OPERATIONS OF MONTICELLO CASINO MANAGEMENT AND MONTICELLO
RACEWAY DEVELOPMENT ARE INSUFFICIENT TO SUPPORT THEIR CASH REQUIREMENTS AND THE
CAYUGA NATION OF NEW YORK IS UNABLE TO OBTAIN ADDITIONAL FINANCING IN ORDER TO
SATISFY THESE REQUIREMENTS, EITHER ON ACCEPTABLE TERMS OR AT ALL, WE MAY BE
FORCED TO DELAY, SCALE BACK OR ELIMINATE SOME OF OUR EXPANSION AND DEVELOPMENT
GOALS, OR CEASE OPERATIONS RELATED TO THE CAYUGA CATSKILL RESORT ENTIRELY.
We anticipate that our reserves of cash, interest expected to be
earned on those reserves, and our anticipated revenues will be sufficient to
finance our and our subsidiaries' ongoing operations in 2004. However,
additional financing will be required to meet our obligations related to the
Cayuga Catskill Resort as soon as regulatory approvals are received and
substantive construction commences. It is likely that we will seek or require
additional capital at some point in 2004 or 2005 through either public or
private financings. Such financings may not be available when needed on terms
acceptable to us or at all. Moreover, any additional equity financings may be
dilutive to our stockholders, and any debt financing may involve restrictive
covenants. An inability to raise such funds when needed might require us to
delay, scale back or eliminate some of our expansion and development goals
related to the Cayuga Catskill Resort, or might require us to cease operations
entirely.
In addition, the construction of the Cayuga Catskill Resort may
depend upon the ability of the Cayuga Nation of New York to obtain financing for
the project. If such financing cannot be obtained on acceptable terms, it may
not be possible to complete this project. In order to assist the Cayuga Nation
of New York, we, or one of our subsidiaries, may be required to guarantee the
Cayuga Nation of New York's debt financing or otherwise provide support for the
obligations. Any guarantees by us or one of our subsidiaries or similar
off-balance sheet liabilities, if any, will increase our potential exposure in
the event of a default by the Cayuga Nation of New York.
OUR MANAGEMENT REVENUES FROM THE CAYUGA CATSKILL RESORT MAY BE ADVERSELY
AFFECTED BY MATTERS ADVERSE TO THE CAYUGA NATION OF NEW YORK THAT ARE UNRELATED
TO US.
When constructed, the Cayuga Catskill Resort, and its surrounding 29
acres of land, will be either owned by the Cayuga Nation of New York or be held
by the United States in trust for the benefit of the Cayuga Nation of New York.
We and our subsidiaries will derive revenues from the resort based on our
management and development contracts. If the Cayuga Nation of New York does not
adequately shield its gaming operations at the Cayuga Catskill Resort from
obligations arising from its other non-gaming operations, and the Cayuga Nation
of New York suffers a material adverse event such as insolvency, a default or
civil damages in a matter in which they did not have sovereign immunity,
creditors could attempt to seize some or all of the property or profits from the
Cayuga Catskill Resort. Such a result could lead to the voidance or indirect
modification by a court of our subsidiaries' management and development
contracts with the Cayuga Nation of New York, leading to a material adverse
affect on our operations. In addition, if creditors were to seize any or all of
the Cayuga Catskill Resort, our subsidiaries' management and development
agreements with the Cayuga Nation of New York would be rendered worthless, as
the ability to conduct casino style gambling on that property would no longer be
permissible.
PENDING LAWSUITS COULD THREATEN THE VIABILITY OF OUR BUSINESS PLAN.
Our ability to participate in New York's video gaming machine
program or to help develop and manage a Native American casino in conjunction
with the Cayuga Nation of New York could be materially adversely affected by the
outcome of two pending lawsuits, Dalton v. Pataki and Karr v. Pataki, that seek
to enjoin the State of New York from proceeding with video gaming machine
operations or permitting the construction of any new Native American casinos
within the State of New York. While the trial court initially dismissed both of
these cases in May of 2003, the plaintiffs filed an appeal of the trial court's
dismissal. On July 7, 2004, the Appellate Division of the Supreme Court of the
State of New York overturned the trial court's dismissal of certain of the
plaintiffs' claims in respect of video gaming machine operations. In overturning
the trial court, the Appellate Division ruled that the legislation permitting
state sponsored video gaming machine operations is unconstitutional under New
York law because such legislation provides that a portion of the video gaming
machine vendor fees be dedicated to breeding funds and enhancing purses in
violation of a constitutional mandate that such moneys be applied exclusively
to, or in aid or support of, education in the State of New York. Notwithstanding
this ruling, the court separately held that video gaming machines are valid,
state operated lotteries and, thus, fall within the exemption of lotteries from
the general ban on gambling in the State of New York. However, as the court was
unable to separate its finding that a video gaming machine is a legitimate
"lottery" from the enacting legislation that it believes unconstitutionally
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directs vendor fees toward breeding funds and enhancing purses, the court held
the entire video gaming machine legislation to be unconstitutional.
The office of the Attorney General of the State of New York has
filed a notice of appeal with respect to the Appellate Division's invalidation
of the video gaming machine legislation. This notice of appeal stays the
appellate court's ruling while the State of New York proceeds to formally appeal
the decision to the New York Court of Appeals, New York State's highest court, a
process that we understand could take 18 months or longer. While the ruling is
stayed, we can continue to operate our video gaming machine facility at
Monticello Raceway in a manner consistent with past practices. However, no
assurance can be given that the Court of Appeals will overrule the Appellate
Division and find the video gaming machine legislation to be constitutional.
Absent such a ruling, to continue video gaming operations at Monticello Raceway,
we would need the New York state legislature to modify the video gaming machine
legislation to remove the provision that directs certain vendor fees be
dedicated toward breeding funds and enhancing purses. Again, no assurance can be
given that if the State of New York loses its appeal on the constitutionality of
the video gaming machine legislation that the State of New York will
subsequently enact the required corrective legislation. Should the State of New
York both lose its appeal and fail to enact corrective legislation, our
operations would be restricted to the operation of Monticello Raceway and our
proposed management and development of a Native American casino. No assurance
can be given that these operations, alone, will be sufficient to satisfy our
obligations under the notes.
Furthermore, we recently entered into an agreement in principal, as
discussed below, with the Monticello Horsemen's Association to settle three
outstanding law suits. Under the terms of this settlement agreement, we agreed
to negotiate, in good faith, increased purse levels at Monticello Raceway. As we
had originally intended to satisfy this obligation with revenue from our video
gaming machine operations, if video gaming machine operations are held to be
unconstitutional, corrective legislation is not enacted or corrective
legislation is enacted that eliminates the dedication of vendor fees to
enhancing purses, we may be unable to meet our obligations under this settlement
agreement, possibly leading to the reinstatement of the lawsuits by the
Monticello Horsemen's Association.
In addition to ruling on the constitutionality of video gaming
machines, on July 7, 2004, the Appellate Division of the Supreme Court of the
State of New York also upheld the trial court's validation of the legislation
authorizing the Governor of the State of New York to enter into gaming compacts
with federally recognized Native American tribes to provide for Class III gaming
on reservation land within the State of New York. We cannot assure you that the
plaintiffs in the underlying litigation will not appeal this portion of the
Appellate Division's ruling. Should an appeal of such ruling be instituted, we
cannot assure you that the New York Court of Appeals will uphold the Appellate
Division's validation of this legislation. Should the plaintiffs prevail on any
such appeal, we may be materially adversely affected. Additionally, any such
appeal, even prior to a definitive ruling on its merits, could adversely affect
the necessary financing efforts for the Cayuga Catskill Resort, as potential
investors might be reluctant to make such an investment given the uncertainty
that such an appeal would create.
A PURCHASER IN OUR 5 1/2% $65 MILLION SENIOR CONVERTIBLE NOTE OFFERING IS
DEMANDING RESCISSION OF ITS $10 MILLION NOTE PURCHASE.
On August 5, 2004, we received a letter from the purchaser of $10
million of notes in our 5 1/2% $65 million senior convertible note offering
demanding the immediate rescission of its full note purchase. This purchaser
claims that the offering circular with respect to these notes was misleading
because it failed to disclose the true status of the litigation settlement talks
between the Cayuga Nation of New York and the State of New York and the
existence of a competing claim in the same lawsuit by the Seneca Cayuga Tribe.
The purchaser further claims that had these disclosures been timely made by us,
the purchaser would not have participated in the note offering. We believe that
each of these claims is without merit and intend to vigorously defend any action
that may be brought against us with respect to the rescission of any note
purchases by this purchaser.
THE CONTINUING DECLINE IN THE POPULARITY OF HORSE RACING AND INCREASING
COMPETITION IN SIMULCASTING COULD ADVERSELY IMPACT THE BUSINESS OF MONTICELLO
RACEWAY.
Since the mid 1980s, there has been a general decline in the number
of people attending and wagering at live horse races at North American
racetracks due to a number of factors, including increased competition from
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other forms of gaming, unwillingness of customers to travel a significant
distance to racetracks and the increasing availability of off-track wagering.
The declining attendance at live horse racing events has prompted racetracks to
rely increasingly on revenues from inter-track, off-track and account wagering
markets. The industry-wide focus on inter-track, off-track and account wagering
markets has increased competition among racetracks for outlets to simulcast
their live races. A continued decrease in attendance at live events and in
on-track wagering, as well as increased competition in the inter-track,
off-track and account wagering markets, could lead to a decrease in the amount
wagered at Monticello Raceway. Our business plan anticipates the possibility of
Monticello Raceway attracting new customers to its racetrack wagering operations
through video gaming machine operations and potential casino development in
order to offset the general decline in raceway attendance. However, even if the
numerous arrangements, approvals and legislative changes necessary for casino
development occur, Monticello Raceway may not be able to maintain profitable
operations. Public tastes are unpredictable and subject to change. Any decline
in interest in horse racing or any change in public tastes may adversely affect
Monticello Raceway's revenues and, therefore, limit its ability to make a
positive contribution to our results.
WE DEPEND ON OUR KEY PERSONNEL AND THE LOSS OF THEIR SERVICES WOULD ADVERSELY
AFFECT OUR OPERATIONS.
If we are unable to maintain our key personnel and attract new
employees with high levels of expertise in those gaming areas in which we
propose to engage, without unreasonably increasing our labor costs, the
execution of our business strategy may be hindered and our growth limited. We
believe that our success is largely dependent on the continued employment of our
senior management and the hiring of strategic key personnel at reasonable costs.
If any of our current senior managers were unable or unwilling to continue in
his or her present position, or we were unable to attract a sufficient number of
qualified employees at reasonable rates, our business, results of operations and
financial condition will be materially adversely affected.
RISK FACTORS RELATING TO THE NOTES
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT OUR CASH
FLOW, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
As a result of the issuance of the notes, our debt service
obligations have increased substantially. There is the possibility that we may
be unable to generate cash sufficient to pay the principal or interest on and
other amounts due in respect of our indebtedness when due. We may also incur
substantial additional indebtedness in the future.
Our level of indebtedness will have several important effects on our
future operations, including, without limitation:
o a portion of our cash flow from operations will be dedicated to
the payment of any interest or amortization required with
respect to outstanding indebtedness;
o increases in our outstanding indebtedness and leverage will
increase our vulnerability to adverse changes in general
economic and industry conditions, as well as to competitive
pressure; and
17
o depending on the levels of our outstanding indebtedness, our
ability to obtain additional financing for working capital,
general corporate and other purposes may be limited.
Our ability to make payments of principal and interest on our
indebtedness depends upon our future performance, which is subject to general
economic conditions, industry cycles and financial, business and other factors
affecting our operations, many of which are beyond our control. Our business
might not continue to generate cash flow at or above current levels. If we are
unable to generate sufficient cash flow from operations in the future to service
our debt, we may be required, among other things:
o to seek additional financing in the debt or equity markets;
o to refinance or restructure all or a portion of our
indebtedness, including the notes; or
o to sell selected assets.
Such measures might not be sufficient to enable us to service our
indebtedness. In addition, any such financing, refinancing or sale of assets may
not be available on commercially reasonable terms, or at all.
UNTIL SUCH TIME AS WE OBTAIN CERTAIN REQUIRED REGULATORY CONSENTS, THE NOTES AND
GUARANTEES MAY INITIALLY BE UNSECURED AND EFFECTIVELY SUBORDINATED TO ALL OF OUR
SECURED DEBT TO THE EXTENT OF THE VALUE OF THE COLLATERAL.
We have caused the notes and guarantees to be secured by
substantially all of our and the guarantors' tangible and intangible assets
(other than our 232 acres of land in Monticello, New York, our rights under our
gaming facility management agreement with the Cayuga Nation of New York and
certain excluded assets) and by a pledge of the equity interests of
substantially all of our subsidiaries, in each case subject to certain permitted
liens. See "Description of the Notes--Collateral". The grant of a security
interest in certain other collateral and the pledge of the equity interests in
certain other subsidiaries may require us to obtain certain regulatory approvals
under New York gaming and racing laws. While we have agreed to use our best
efforts to obtain such approvals, there can be no assurance that all or any of
such required regulatory consents will be obtained on a timely basis or at all,
and until such time as such consents are obtained, you will not have the benefit
of a security interest in the equity interests to which such consents relate.
Additionally, we have agreed to use our best efforts to cause, on or prior to
April 22, 2005, if the Trigger Event shall have not yet occurred, the notes and
the guarantees to become secured by a mortgage on our 232 acres of land in
Monticello, New York. See "Description of the Notes--Collateral". The grant of
such mortgage may also require certain regulatory approvals under New York
gaming and racing laws. While we have agreed to use our best efforts to obtain
such approvals prior to April 22, 2005, there can be no assurance that all or
any of such required regulatory consents will be obtained on a timely basis or
at all, and until such time as such consents are obtained, you will not have the
benefit of a security interest in our 232 acres of land in Monticello, New York.
Unless and until, pursuant to the terms of the indenture governing
the notes, the notes become secured by any of the collateral described in the
preceding paragraph, the notes and guarantees will be effectively subordinated
to all of our and the guarantors' existing and future secured indebtedness to
the extent of the value of the assets that secure such indebtedness. As of
September 30, 2004, we had no senior unsecured indebtedness and, other than the
notes, no secured indebtedness and the guarantors had no indebtedness. After the
occurrence of the Trigger Event, the indenture will not restrict our ability to
secure any indebtedness permitted to be incurred pursuant to the terms of the
indenture. In the event of our bankruptcy, liquidation or reorganization or upon
acceleration of the notes, payment on the notes could be less, ratably, than on
any of our secured indebtedness. We may not have sufficient assets remaining to
pay amounts due on any or all of the notes then outstanding.
18
PRIOR TO THE OCCURRENCE OF THE TRIGGER EVENT AND THE RELATED RELEASE OF THE
COLLATERAL SECURING THE NOTES AND GUARANTEES, YOUR RIGHTS TO RECEIVE PAYMENTS ON
THE NOTES FROM THE SALE OF COLLATERAL SECURING THE NOTES AND GUARANTEES MAY BE
CONTRACTUALLY SUBORDINATED TO PAYMENTS UNDER ANY SECURED CREDIT FACILITY WE
ENTER INTO IN THE FUTURE, TO THE EXTENT OF THE COLLATERAL SECURING SUCH
FACILITY.
Under the indenture governing the notes, we will be permitted to
incur up to $10.0 million of secured indebtedness under any new secured credit
facility that we enter into following this offering. The security interests in
the collateral securing the notes and guarantees prior to the occurrence of the
Trigger Event will be contractually subordinated to any indebtedness we incur
under any such new credit facility pursuant to an intercreditor agreement. As a
result, upon any distribution to our creditors, whether or not in bankruptcy,
liquidation, reorganization or similar proceedings, or following acceleration of
our indebtedness or an event of default under such indebtedness, the lenders
under any such new secured credit facility will be entitled to be repaid in full
from the proceeds of the assets securing such credit facility before any payment
is made in respect of the notes from such proceeds. If the proceeds of any sale
of collateral are not sufficient to repay all amounts due on the notes, the
holders of the notes (to the extent not repaid from the proceeds of the sale of
the collateral), would have only an unsecured claim against our remaining
assets.
Additionally, the rights of the holders of the notes with respect to
the collateral securing the notes will be limited pursuant to the terms of an
intercreditor agreement with the lenders under that credit facility. Under the
intercreditor agreement, if our obligations under that credit facility are
outstanding, any actions that may be taken in respect of the collateral,
including the ability to cause the commencement of enforcement proceedings
against the collateral and to control the conduct of such proceedings, and the
approval of amendments to the collateral documents, will be limited and, in
certain cases, only able to be taken at the direction of the lenders under that
credit facility, and the trustee, on behalf of the holders of the notes, will
not have the ability to control or direct such actions for a period of at least
90 days, even if the rights of the holders of the notes are or may be adversely
affected. See "Description of the Notes--Collateral."
THE SECURITY INTERESTS IN CERTAIN OF THE COLLATERAL MAY BE RELEASED AT CERTAIN
TIMES PRIOR TO THE OCCURRENCE OF THE TRIGGER EVENT AND ALL OF THE SECURITY
INTERESTS IN THE REMAINING COLLATERAL SECURING THE NOTES AND GUARANTEES WILL
TERMINATE AND BE DISCHARGED, AND ALL OF THE COLLATERAL FOR THE NOTES AND
GUARANTEES WILL BE RELEASED FROM THE LIENS OF THE INDENTURE, UPON THE OCCURRENCE
OF THE TRIGGER EVENT.
The pledge of our equity interests in Monticello Casino Management
will be released to the extent required to obtain approval of our gaming
facility management agreement by the National Indian Gaming Commission and the
mortgage on the site of the Cayuga Catskill Resort will be released as required
for the transfer of such site to the United States to be held in trust for the
Cayuga Nation of New York. Additionally, the security interests in all of the
remaining collateral securing the notes and guarantees will be terminated and
discharged and all of the collateral underlying such security interests shall be
released from the lien of the indenture upon the occurrence of the Trigger
Event. See "Description of the Notes--Release of Collateral". From and after any
such termination and discharge of the liens securing the notes and the
guarantees, the notes and guarantees will be effectively subordinated to all of
our and the guarantors' then existing and future secured indebtedness to the
extent of the value of the assets that secure such indebtedness and in the event
of our bankruptcy, liquidation or reorganization or upon acceleration of the
notes, payment on the notes could be less, ratably, than on any of our secured
indebtedness. We may not have sufficient assets remaining to pay amounts due on
any or all of the notes then outstanding.
CERTAIN RESTRICTIVE COVENANTS CONTAINED IN THE INDENTURE GOVERNING THE NOTES FOR
THE BENEFIT OF THE HOLDERS OF THE NOTES WILL EITHER BECOME LESS RESTRICTIVE OR
TERMINATE AND BECOME INEFFECTIVE UPON THE OCCURRENCE OF THE TRIGGER EVENT.
From and after the occurrence of the Trigger Event, the limitations
on our ability to incur additional indebtedness and other liabilities contained
in the indenture governing the notes become substantially less restrictive, at
which time we and the guarantors will be permitted to incur up to $150.0 million
of additional indebtedness and other liabilities (that may be secured) in excess
of the amounts we would be permitted to incur under the indenture prior to the
Trigger Event. Additionally, from and after the occurrence of the Trigger Event,
the indenture will cease to prohibit us from pledging assets to secure any of
our indebtedness and liabilities. The incurrence of additional indebtedness and
in particular the granting of a security interest to secure the indebtedness,
19
could adversely affect our ability to pay our obligations on the notes. We
anticipate that from time to time we will incur additional indebtedness in the
future.
PRIOR TO THE OCCURRENCE OF THE TRIGGER EVENT AND THE RELATED RELEASE OF THE
COLLATERAL SECURING THE NOTES AND GUARANTEES, THE COLLATERAL SECURING THE NOTES
AND GUARANTEES MAY NOT BE SUFFICIENT TO SATISFY OUR AND THE GUARANTORS'
OBLIGATIONS UNDER THE NOTES AND GUARANTEES.
No appraisal of the value of any of the collateral that secure or
may potentially secure the notes and guarantees has been made in connection with
this offering and the value of any such collateral will depend upon market and
economic conditions, the availability of buyers and other factors. By its
nature, all or some of such collateral will be illiquid and may have no readily
ascertainable market value. Consequently, we cannot assure you that liquidating
any collateral securing the notes and guarantees would produce proceeds in an
amount sufficient to pay any amounts due under the notes after also satisfying
the obligations to pay our other secured creditors. Nor can we assure you that
the fair market value of any such collateral would be sufficient to pay any
amounts due under the notes following any acceleration of the notes.
Additionally, the ability of the trustee to foreclose on any such
collateral on your behalf may also be subject to perfection, the consent of
third parties, governmental approvals and practical problems associated with the
realization of the collateral agent's security interest in the collateral. We
have not obtained the consent of third parties whose consent may be necessary to
allow the collateral agent to foreclose on the collateral consisting of contract
rights or collateral as to which third parties have contractual rights. We
cannot assure you that the consents of such third parties or any required
approvals of governmental entities will be given when required to facilitate a
foreclosure on such assets.
FEDERAL OR STATE LAWS ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID DEBTS,
INCLUDING GUARANTEES, AND COULD REQUIRE HOLDERS OF NOTES TO RETURN PAYMENTS
RECEIVED FROM US AND THE GUARANTORS.
If a bankruptcy proceeding or lawsuit were to be initiated by unpaid
creditors, the notes and the guarantees of the notes could come under review for
federal or state fraudulent transfer violations. Under federal bankruptcy law
and comparable provisions of state fraudulent transfer laws, obligations under
the notes or guarantees of the notes could be voided, or claims in respect of
the notes or guarantees of the notes could be subordinated to all other debts of
the debtor or guarantor if, among other things, the debtor or guarantor at the
time it incurred the debt evidenced by such notes or guarantees:
o received less than reasonably equivalent value or fair
consideration for the incurrence of such debt or guarantee; and
o one of the following applies:
o it was insolvent or rendered insolvent by reason of such
incurrence;
o it was engaged in a business or transaction for which its
remaining assets constituted unreasonably small capital; or
o it intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they mature.
In addition, any payment by that debtor or guarantor under the notes
or guarantees of the notes could be voided and required to be returned to the
debtor or guarantor, as the case may be, or to a fund for the benefit of the
creditors of the debtor or guarantor.
The measures of insolvency for purposes of these fraudulent transfer
laws will vary depending upon the law applied in any proceeding to determine
whether a fraudulent transfer has occurred. Generally, however, a debtor or
guarantor would be considered insolvent if:
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o the sum of its debts, including contingent liabilities, was
greater than the fair salable value of all of its assets;
o the present fair salable value of its assets was less than the
amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they
become absolute and mature; or
o it could not pay its debts as they become due.
OUR FAILURE TO OBTAIN REQUIRED REGULATORY CONSENTS MAY PREVENT US FROM GRANTING
TO YOU A SECURITY INTEREST IN OUR ASSETS; ANY DELAY IN GRANTING SUCH SECURITY
INTERESTS, AND THE FACT THAT THE STRUCTURE OF THIS TRANSACTION PROVIDES THAT
CERTAIN OF SUCH SECURITY INTERESTS WILL BE GRANTED IN THE FUTURE, INCREASES THE
RISK THAT THE MORTGAGE COULD BE AVOIDED, OR THAT SUCH SECURITY INTERESTS WOULD
BE SUBJECT TO INTERVENING LIENS.
We have caused the notes and guarantees to be secured by
substantially all of our and the guarantors' tangible and intangible assets
(other than our 232 acres of land in Monticello, New York, our rights under our
gaming facility management agreement with the Cayuga Nation of New York and
certain excluded assets) and by a pledge of the equity interests of
substantially all of our subsidiaries, in each case subject to certain permitted
liens. See "Description of the Notes--Collateral". The grant of a security
interest in certain other collateral and the pledge of the equity interests in
certain other subsidiaries may require us to obtain certain regulatory approvals
under New York gaming and racing laws. Additionally, we have agreed to use our
best efforts to cause, on or prior to April 22, 2005, if the Trigger Event shall
have not yet occurred, the notes and the guarantees to become secured by a
mortgage on our 232 acres of land in Monticello, New York. See "Description of
the Notes--Collateral". Our ability to grant such security interests are subject
to our obtaining certain required regulatory consents. While we have agreed to
use our best efforts to obtain such approvals, there can be no assurance that
all or any of such required regulatory consents will be obtained in a timely
manner, if at all.
If we or any guarantor were to become subject to a bankruptcy
proceeding, any security interest granted in the future would face a greater
risk of being invalidated than if we had delivered it at the issue date. If a
security interest is granted after the issue date, it is treated under
bankruptcy law as if it were delivered to secure previously existing debt. In a
bankruptcy proceeding, a security interest given to secure previously existing
debt is materially more likely to be avoided as a preference by the bankruptcy
court than if it were delivered and promptly recorded or filed at the time of
the issue date of the notes. The magnitude of this additional risk would depend
in part on factors similar to those described in the risk factor set forth
immediately above. Accordingly, if we or a guarantor were to file bankruptcy in
the future, the security interests we grant to secure the notes may be
especially subject to challenge as a result of having been delivered after the
issue date of the notes.
In addition, the holders of any obligations secured by a lien
existing prior to the filing or perfection of the security interest granted to
the holders of the notes would be entitled to be repaid in full from the
proceeds of the assets securing such obligations before any payment is made in
respect of the notes from such proceeds.
GAMING AND RACING LAWS, BANKRUPTCY LAWS AND OTHER LAWS AND REGULATIONS MAY DELAY
OR OTHERWISE IMPEDE THE TRUSTEE'S ABILITY TO FORECLOSE ON ANY COLLATERAL
SECURING THE NOTES AND GUARANTEES.
The gaming and racing licensing processes, along with other laws
relating to foreclosure and sale, could substantially delay or prevent the
ability of the trustee or any holder of the notes to obtain the benefit of any
collateral securing the notes and guarantees. If the trustee sought to operate,
or retain an operator for, our gaming and racing operations at Monticello
Raceway, the trustee would be required to obtain New York gaming and racing
licenses. Potential purchasers of our gaming and racing operations at Monticello
Raceway would also be required to obtain a New York gaming license as well as
appropriate racing licenses relating to horse racetrack operations. This could
limit the number of potential purchasers in a sale of the Monticello Raceway,
which may delay the sale of and reduce the price paid for the collateral.
21
Federal bankruptcy law could also impair the trustee's ability to
foreclose on any collateral. If a bankruptcy proceeding were to be commenced
under the federal bankruptcy laws by or against us or any guarantor, it is
likely that delays will occur in any payment upon acceleration of the notes and
in enforcing remedies under the related indenture, including with respect to any
liens securing the notes and guarantees, because of specific provisions of such
laws or by a court applying general principles of equity. Provisions under
federal bankruptcy laws or general principles of equity that could result in the
impairment of your rights include, but are not limited to:
o the automatic stay;
o avoidance of preferential transfers by a trustee or debtor-in-
possession;
o substantive consolidation;
o limitations on collectability of unmatured interest or attorney
fees;
o fraudulent conveyance; and
o forced restructuring of the notes, including reduction of
principal amounts and interest rates and extension of maturity
dates, over the holders' objections.
Additionally, applicable federal bankruptcy laws generally permit a
debtor to continue to retain and to use collateral, even if the debtor is in
default under the applicable debt instruments, provided that the secured
creditor is given "adequate protection." The interpretation of the term
"adequate protection" may vary according to circumstances, but it is intended in
general to protect the value of the secured creditor's interest in collateral.
Because the term "adequate protection" is subject to varying interpretation and
because of the broad discretionary powers of a bankruptcy court, it is
impossible to predict (1) whether payments under any of the notes would be made
following commencement of and during a bankruptcy case, (2) whether or when the
lenders under any future secured credit facility could foreclose upon or sell
any collateral or (3) whether or to what extent holders of the notes would be
compensated for any delay in payment or loss of value of the collateral under
the doctrine of "adequate protection." Furthermore, in the event a bankruptcy
court were to determine that the value of the collateral was not sufficient to
repay all amounts due on the notes, the holders of such notes would become
holders of "undersecured claims." Applicable federal bankruptcy laws generally
do not permit the payment or accrual of interest, costs and attorneys' fees for
"undersecured claims."
Moreover, the trustee may need to evaluate the impact of the
potential liabilities before determining to foreclose on any collateral
consisting of real property because secured creditors that hold a security
interest in real property may be held liable under environmental laws for the
costs of remediating or preventing the release or threatened release of
hazardous substances at such real property. Consequently, the trustee may
decline to foreclose on such collateral or exercise remedies available in
respect thereof if it does not receive indemnification to its satisfaction from
the holders of the notes.
BECAUSE OF GAMING REGULATORY REQUIREMENTS RELATING TO PROVIDING INFORMATION AND
OBTAINING APPROVAL FROM GAMING REGULATORS, HOLDERS OF NOTES EFFECTIVELY MAY BE
LIMITED IN THE AMOUNT OF OUR COMMON STOCK THEY ACQUIRE UNDER A CONVERSION.
Our gaming facility management agreement must be approved by the
National Indian Gaming Commission before it is effective. In connection with
seeking this approval we must identify and provide financial and other
background information to the National Indian Gaming Commission for, among other
persons, the ten largest holders of our stock. Based on the gaming compact of
the Seneca Nation of Indian, we expect that any gaming compact entered into
between the Cayuga Nation of New York and the State of New York will contain a
requirement that background information must be submitted to the Cayuga Nation
Gaming Authority and State of New York gaming officials for each person holding
more than 5% of our stock, and that these stock holders will also be required to
be licensed or approved by these regulators. Because of these regulatory
requirements and other potentially applicable gaming regulations, holders of
notes who would otherwise be entitled through a conversion to become larger
stockholders might be effectively precluded from acquiring more than 5% of our
stock upon a conversion. Additionally, given the novelty of the New York State
video gaming legislation and related regulations, New York gaming regulators may
in the future implement additional restrictions on the ownership of our common
stock and may impose other informational or licensing obligations upon holders
of the notes or shares of our common stock.
WE MAY NOT HAVE THE ABILITY TO REPURCHASE THE NOTES.
Upon the occurrence of a change in control (as defined in the
indenture governing the notes), we would be required to repurchase all
outstanding notes tendered to us by the holders of such notes. In addition, you
may require us to repurchase your notes on July 31, 2009. We cannot assure you
that we will have sufficient financial resources, or will be able to arrange
22
financing, to pay the purchase price for all of the notes tendered by the
holders in connection with any such repurchase. Any failure to repurchase the
notes when required will result in an event of default under the indenture. Our
failure to make or consummate the change of control offer or pay the purchase
price in connection with any such repurchase when due will give the trustee and
the holders of the notes the rights described in "Description of the
Notes--Events of Default."
In addition, the events that constitute a change of control under
the indenture may also be events of default under any credit agreement or other
agreement governing future debt. These events may permit the lenders under such
credit agreement or other agreement to accelerate the debt outstanding
thereunder and, if such debt is not paid, to enforce security interests in the
collateral securing such debt, thereby limiting our ability to raise cash to
purchase the notes, and reducing the practical benefit of the offer to purchase
provisions to the holders of the notes. For more information, see "Description
of the Notes--Repurchase or Payment upon Change of Control" and "Description of
the Notes--Repurchase at the Option of the Holder."
THE NOTES ARE NOT PROTECTED BY RESTRICTIVE COVENANTS.
The indenture governing the notes does not contain any financial or
operating controls or restrictions on the payment of dividends or the issuance
or repurchase of securities by us or any of the guarantors. Additionally, from
and after the occurrence of the Trigger Event, the limitations on our ability to
incur additional indebtedness contained in the indenture will become
substantially less restrictive and the indenture will also cease to prohibit or
limit us or the guarantors from pledging assets to secure such indebtedness and
liabilities. The indenture contains no covenants or other provisions to afford
protection to holders of the notes in the event of a change in control involving
us, except to the extent described under "Description of the Notes."
THERE IS NO PUBLIC MARKET FOR THE NOTES, NO GUARANTEE THAT A MARKET MAY DEVELOP
AND TRANSFERS OF THE NOTES WILL BE RESTRICTED.
The notes initially were sold to qualified institutional buyers and
are eligible for trading in the PORTALSM Market of the National Association of
Securities Dealers, Inc. However, notes sold by means of this prospectus are not
eligible for trading in the PORTAL Market. We do not intend to list the notes on
any national securities exchange or to seek the admission of the notes for
trading over the National Association of Securities Dealers Automated Quotation
System. As a result, we cannot assure you that a market will develop for the
notes or that you will be able to sell your notes.
Even if an active trading market were to develop, the notes could
trade at prices that may be lower than the price at which a holder purchased the
notes, or holders could experience difficulty or an inability to resell the
notes. Whether or not the notes will trade at lower prices depends on many
factors, including prevailing interest rates, the market for similar securities,
the price of our common stock, our performance and other factors.
IF YOU HOLD NOTES, YOU WILL NOT BE ENTITLED TO ANY RIGHTS WITH RESPECT TO OUR
COMMON STOCK, BUT YOU WILL BE SUBJECT TO ALL CHANGES MADE WITH RESPECT TO OUR
COMMON STOCK.
If you hold notes, you will not be entitled to any rights with
respect to our common stock (including, without limitation, voting rights and
rights to receive any dividends or other distributions on our common stock), but
you will be subject to all changes affecting our common stock. You will have the
rights with respect to our common stock only if and when we deliver shares of
our common stock to you upon conversion of your notes and, in limited cases,
under the conversion rate adjustments applicable to the notes. For example, in
the event that an amendment is proposed to our certificate of incorporation or
bylaws requiring stockholder approval and the record date for determining the
stockholders of record entitled to vote on the amendment occurs prior to the
delivery of shares of our common stock to you, you will not be entitled to vote
on the amendment, although you will nevertheless be subject to any changes in
the powers, preferences or special rights of our common stock.
ADJUSTMENTS TO THE CONVERSION RATE ON THE NOTES MAY RESULT IN A TAXABLE
DISTRIBUTION TO YOU.
The conversion ratio of the notes will be adjusted if we distribute
cash with respect to shares of our common stock and in certain other
circumstances. Under Section 305(c) of the Internal Revenue Code, an increase in
23
the conversion ratio as a result of our distribution of cash to common
stockholders generally will result in a deemed distribution to you. Other
adjustments in the conversion ratio (or failures to make such adjustments) that
have the effect of increasing your proportionate interest in our assets or
earnings may have the same result. Any deemed distribution to you will be
taxable as a dividend to the extent of our current or accumulated earnings and
profits. See "Certain United States Federal Income Tax Consequences."
RISK FACTORS RELATING TO OUR COMMON STOCK
CONVERSION OF THE NOTES WILL DILUTE THE OWNERSHIP INTEREST OF EXISTING
STOCKHOLDERS.
The conversion of notes into shares of our common stock will dilute
the ownership interests of existing stockholders. Any sales in the public market
of the shares of our common stock issuable upon conversion of the notes could
adversely affect prevailing market prices of our common stock. In addition, the
existence of the notes may encourage short selling by market participants due to
this dilution or facilitate trading strategies involving the notes and our
common stock.
THE VALUE OF THE CONVERSION RIGHT ASSOCIATED WITH THE NOTES MAY BE SUBSTANTIALLY
LESSENED OR ELIMINATED IF WE ARE PARTY TO A MERGER, CONSOLIDATION OR OTHER
SIMILAR TRANSACTION.
If we are party to a consolidation, merger or binding share exchange
or transfer or lease of all or substantially all of our assets pursuant to which
shares of our common stock are converted into cash, securities or other
property, at the effective time of the transaction, the right to convert a note
into shares of our common stock will be changed into a right to convert the note
into the kind and amount of cash, securities or other property which the holder
would have received if the holder had converted its note immediately prior to
the transaction. This change could substantially lessen or eliminate the value
of the conversion privilege associated with the notes in the future. For
example, if we were acquired in a cash merger, each note would become
convertible solely into cash and would no longer be convertible into securities
whose value would vary depending on our future prospects and other factors.
FUTURE SALES OF SHARES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY
AFFECT THE TRADING PRICE OF SHARES OF OUR COMMON STOCK, THE VALUE OF THE NOTES
AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
Future sales of substantial amounts of shares of our common stock in
the public market, or the perception that such sales are likely to occur, could
affect prevailing trading prices of our common stock and, as a result, the value
of the notes. As of September 8, 2004, we had 26,074,942 shares of common stock
outstanding. Because the notes generally are initially convertible into shares
of our common stock only at a conversion price in excess of the recent trading
price, a decline in our common stock price may cause the value of the notes to
decline.
Recently 18,219,075 shares of our common stock were issued pursuant
to our acquisition of Monticello Raceway Management, Monticello Casino
Management, Monticello Raceway Development and Mohawk Management, LLC, all of
which may be sold to the public pursuant to a registration statement under the
Securities Act. We also recently issued 4,050,000 shares of our common stock to
multiple investors in a private placement. We also have outstanding options to
purchase an aggregate of 945,028 shares of common stock at an average exercise
price of $4.73 per share and 250,000 warrants at an exercise price of $7.50 per
warrant. If the holders of these shares, options or warrants were to attempt to
sell a substantial amount of their holdings at once, the market price of our
common stock would likely decline. Moreover, the perceived risk of this
potential dilution could cause stockholders to attempt to sell their shares and
investors to "short" the stock, a practice in which an investor sells shares
that he or she does not own at prevailing market prices, hoping to purchase
shares later at a lower price to cover the sale. As each of these events would
cause the number of shares of our common stock being offered for sale to
increase, the common stock's market price would likely further decline. All of
these events could combine to make it very difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate.
24
THE PRICE AT WHICH SHARES OF OUR COMMON STOCK MAY BE PURCHASED ON THE NASDAQ
SMALL CAP MARKET IS CURRENTLY LOWER THAN THE CONVERSION PRICE OF THE NOTES AND
MAY REMAIN LOWER IN THE FUTURE.
Prior to electing to convert the notes, you should compare the price
at which shares of our common stock are trading in the market to the conversion
price of the notes. Our common stock trades on the Nasdaq Small Cap Market under
the symbol "NYNY." On September 29, 2004, the closing bid price for our common
stock on the Nasdaq Small Cap Market was $7.49 per share. The initial conversion
rate on the notes is equivalent to an initial conversion price of $13.75 per
share. The market prices of our securities are subject to fluctuations. Such
fluctuations, as well as economic conditions generally, may adversely affect the
market price of our securities, including shares of our common stock and the
notes.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS DISCOURAGE
UNSOLICITED TAKEOVER PROPOSALS AND COULD PREVENT YOU FROM REALIZING A PREMIUM
RETURN ON YOUR INVESTMENT IN OUR COMMON STOCK.
Our board of directors is divided into three classes, with each
class constituting one-third of the total number of directors and the members of
each class serving staggered three-year terms. This classification of the board
of directors makes it more difficult for our stockholders to change the
composition of the board of directors because only a minority of the directors
can be elected at once. The classification provisions could also discourage a
third party from accumulating our stock or attempting to obtain control of us,
even though this attempt might be beneficial to us and some, or a majority, of
our stockholders. Accordingly, under certain circumstances our stockholders
could be deprived of opportunities to sell their shares of common stock at a
higher price than might otherwise be available. In addition, pursuant to our
certificate of incorporation, our board of directors has the authority, without
further action by the stockholders, to issue up to 3,225,045 shares of preferred
stock on such terms and with such rights, preferences and designations,
including, without limitation, restricting dividends on our common stock,
dilution of our common stock's voting power and impairing the liquidation rights
of the holders of our common stock, as the board of directors may determine.
Issuance of such preferred stock, depending upon its rights, preferences and
designations, may also have the effect of delaying, deterring or preventing a
change in control.
YOUR ABILITY TO INFLUENCE CORPORATE DECISIONS MAY BE LIMITED BECAUSE OUR MAJOR
STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR COMMON STOCK.
Our significant stockholders own a substantial portion of our
outstanding stock. As a result of their stock ownership, if these stockholders
were to choose to act together, they would be able to control all matters
submitted to our stockholders for approval, including the election of directors
and approval of any merger, consolidation or sale of all or substantially all of
our assets. This concentration of voting power could delay or prevent an
acquisition of our company on terms that other stockholders may desire. In
addition, as the interests of our majority and minority stockholders may not
always be the same, this large concentration of voting power may lead to
stockholder votes that are inconsistent with your best interests or the best
interest of us as a whole.
THE MARKET PRICE OF OUR COMMON STOCK IS VOLATILE, LEADING TO THE POSSIBILITY OF
ITS VALUE BEING DEPRESSED AT A TIME WHEN YOU WANT TO SELL YOUR HOLDINGS.
The market price of our common stock has in the past been, and may
in the future continue to be, volatile. For instance, between January 1, 2002
and September 29, 2004, the closing bid price of our common stock has ranged
between $1.39 and $16.74. A variety of events may cause the market price of our
common stock to fluctuate significantly, including but not necessarily limited
to:
o quarter to quarter variations in operating results;
o adverse news announcements; and
o market conditions for the gaming industry.
25
In addition, the stock market in recent years has experienced
significant price and volume fluctuations for reasons unrelated to operating
performance. These market fluctuations may adversely affect the price of our
common stock at a time when you want to sell your interest in us.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference
forward-looking statements within the meaning of Section 27A(i)(1) of the
Securities Act, as amended and Section 21E(i)(1) of the Securities and Exchange
Act of 1934, as amended (the "EXCHANGE ACT"). When used or incorporated by
reference in this prospectus, statements which are not historical in nature,
including the words "may," "will," "should," "continue," "future," "potential,"
"believe," "expect," "anticipate," "project," "plan," "intend," "seek,"
"estimate" and similar expressions are intended to identify forward-looking
statements.
The forward-looking statements in this prospectus are based upon our
management's beliefs, assumptions and expectations of our future operations and
economic performance, taking into account the information currently available to
us. These statements are not statements of historical fact. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance or financial
condition to be materially different from any future results expressed or
implied by these statements. Such factors include, among other things, the risks
discussed in this prospectus under the caption "Risk Factors."
In light of these and other uncertainties, the forward-looking
statements included or incorporated by reference in this prospectus should not
be regarded as a representation by us that our plans and objectives will be
achieved. You should not place undue reliance on any forward-looking statements,
and we undertake no obligation to publicly update or revise any forward-looking
statements after the date of this prospectus, whether as a result of new
information, future events or otherwise.
USE OF PROCEEDS
We will not receive any proceeds from the resale of the notes and
the common stock issuable upon conversion of the notes by any selling
securityholders. All the proceeds from the sale of the notes and the shares of
common stock will be for the account of the selling securityholders. See the
"Selling Securityholders" and "Plan of Distribution" sections of this
prospectus.
SELLING SECURITYHOLDERS
The notes were originally issued by us and sold by Jefferies &
Company, Inc. (the "initial purchaser") in transactions exempt from the
registration requirements of the Securities Act to persons reasonably believed
by the initial purchaser to be "qualified institutional buyers" as defined by
Rule 144A under the Securities Act of 1933. The selling securityholders may from
time to time offer and sell pursuant to this prospectus any or all of the notes
listed below and the shares of common stock issued upon conversion of such
notes. When we refer to the "selling securityholders" in this prospectus, we
mean those persons listed in the table below, as well as the pledgees, donees,
assignees, transferees, successors and others who later hold any of the selling
securityholders' interests.
The table below sets forth the name of each selling securityholder,
the principal amount at maturity of notes that each selling securityholder may
offer pursuant to this prospectus and the maximum number of shares of common
stock into which such notes are convertible. To our knowledge, except for
Jefferies &Company, Inc., none of the selling securityholders has, or within
the past three years has had, any material relationship with us or any of our
predecessors or affiliates or beneficially owns in excess of 1% of the
outstanding common stock. In February 2004 Jefferies &Company, Inc. served as
our exclusive placement agent with respect to a $30 million private placement
and Jefferies & Company, Inc. is currently advising us with respect to various
potential acquisition and financing opportunities.
The principal amounts of the notes provided in the table below is
based on information provided to us by each of the selling securityholders and
the percentages are based on $52.2 million principal amount at maturity of
notes outstanding. The number of shares of common stock that may be sold is
calculated based on the lowest possible conversion price of $12.56 per share.
26
We have prepared the table below based on information provided to us
by the selling securityholders who returned investor questionnaires. Since the
date on which each selling securityholder provided this information, each
selling securityholder identified below may have sold, transferred or otherwise
disposed of all or a portion of its notes in a transaction exempt from the
registration requirements of the Securities Act. Information concerning the
selling securityholders may change from time to time and any changed information
will be set forth in supplements to this prospectus to the extent required. In
addition, the conversion ratio, and therefore the number of shares of our common
stock issuable upon conversion of the notes, is subject to adjustment.
Accordingly, the number of shares of common stock issuable upon conversion of
the notes may decrease.
Any or all of the notes or shares of our common stock listed below
may be offered for sale pursuant to this prospectus by the selling
securityholders from time to time. Accordingly, no estimate can be given as to
the amounts of notes or our common stock that will be held by the selling
securityholders upon consummation of any such sales.
ORIGINAL
PRINCIPAL NUMBER OF
AMOUNT OF SHARES OF NUMBER OF NUMBER OF
NOTES PERCENTAGE OF COMMON SHARES OF SHARES OF
BENEFICIALLY NOTES STOCK HELD COMMON COMMON
OWNED THAT OUTSTANDING BEFORE STOCK OFFERED STOCK HELD
NAME MAY BE SOLD BEFORE OFFERING OFFERING(1) FOR SALE(1) AFTER OFFER(2)
---- ----------- --------------- ----------- ----------- --------------
Harbert Convertible $6,000,000 9.23% 477,707 477,707 --
Arbitrage Master Fund,
Ltd.
Whitebox Diversified $1,000,000 1.54% 79,618 79,618 --
Convertible Arbitrage
Partners LP
Guggenheim Portfolio $ 250,000 * 19,904 19,904 --
XXXI, LLC
Pandora Select Partners $1,750,000 2.69% 139,331 139,331 --
LP
Whitebox Hedged High $2,500,000 3.85% 199,045 199,045 --
Yield Partners LP
Whitebox Convertible $4,500,000 6.92% 358,280 358,280 --
Arbitrage Partners LP
DBAG London $5,750,000 8.85% 457,802 457,802
AG Domestic $ 600,000 * 47,771 47,771 --
Convertibles, L.P.
AG Offshore $1,400,000 2.15% 111,465 111,465 --
Convertibles, Ltd
Portside Growth and $2,000,000 3.08% 159,236 159,236 --
Opportunity Fund Ltd.
Basso Multi-Strategy $4,500,000 6.92% 358,280 358,280 --
Holding Fund
Cohanzick Credit $1,000,000 1.54% 79,618 79,618 --
Opportunities Master
Fund, Ltd.
27
ORIGINAL
PRINCIPAL NUMBER OF
AMOUNT OF SHARES OF NUMBER OF NUMBER OF
NOTES PERCENTAGE OF COMMON SHARES OF SHARES OF
BENEFICIALLY NOTES STOCK HELD COMMON COMMON
OWNED THAT OUTSTANDING BEFORE STOCK OFFERED STOCK HELD
NAME MAY BE SOLD BEFORE OFFERING OFFERING(1) FOR SALE(1) AFTER OFFER(2)
---- ----------- --------------- ----------- ----------- --------------
Smithfield Fiduciary $1,500,000 2.31% 119,427 119,427 --
LLC
Aviator Overseas Fund II $ 83,000 * 6,608 6,608 --
Aviator Master Fund $ 917,000 1.41% 73,010 73,010 --
American Investors Life $ 750,000 1.15% 59,713 59,713 --
Insurance Co.
Ritchie Long/Short $2,500,000 3.85% 300,953 199,045 101,908
Trading Ltd.
The Animi Master $4,500,000 6.92% 658,280 358,280 300,000
Fund, Ltd.
Circle T Partners LP $3,000,000 4.62% 295,753 238,853 56,900
Jefferies & Company, $950,000 1.46% 75,637 75,637 --
Inc.
Gabriel Capital, LP $ 490,000 * 39,013 39,013 --
Ariel Fund, Ltd. $ 510,000 * 40,605 40,605 --
Bernische $ 600,000 * 47,771 47,771 --
Lehrerversicherungskasse
Jefferies Umbrella Fund $1,300,000 2.00% 103,503 103,503 --
Global Convertible
Bonds
Beamtenvers $3,200,000 4.92% 254,777 254,777 --
Icherungskasse Des
Kantons Zurich
Auspicis Ltd $ 100,000 * 7,962 7,962 --
Pensionkasse Der EMS- $ 60,000 * 4,777 4,777 --
Chemie AG
Pensionkasse Der $ 60,000 * 4,777 4,777
Rockwell Automation
AG
28
ORIGINAL
PRINCIPAL NUMBER OF
AMOUNT OF SHARES OF NUMBER OF NUMBER OF
NOTES PERCENTAGE OF COMMON SHARES OF SHARES OF
BENEFICIALLY NOTES STOCK HELD COMMON COMMON
OWNED THAT OUTSTANDING BEFORE STOCK OFFERED STOCK HELD
NAME MAY BE SOLD BEFORE OFFERING OFFERING(1) FOR SALE(1) AFTER OFFER(2)
---- ----------- --------------- ----------- ----------- --------------
Pensionkasse Der EMS - $ 90,000 * 7,166 7,166 --
Dottikon AG
Pensionkasse Vantico $ 90,000 * 7,166 7,166 --
Personal $ 150,000 * 11,943 11,943 --
Fuersorgestiftung Der
Gebaudeversicherung
Des Kantons Bern
Personal Vorsorge Der $ 150,000 * 11,943 11,943 --
PV Promea
Gemini Sammel Stiftung $ 200,000 * 15,923 15,923 --
Zur Foerderung Der
Personal Vorsorge
DB Distressed Opportunities $ 300,000 * 23,885 23,885 --
Fund, L.P.
DB Distressed Opportunities $1,500,000 2.31% 119,427 119,427 --
Fund, Ltd.
MW Post Portfolio Fund, Ltd $2,350,000 3.62% 187,102 187,102 --
Sphinx Distressed (MW Post $ 900,000 1.38% 71,656 71,656 --
Opportunity) Segregated
Portfolio
HFR DS Opportunity Master $ 900,000 1.38% 71,656 71,656 --
Trust
MW Post Opportunity Offshore $1,250,000 1.92% 99,522 99,522 --
Fund, Ltd.
Post Total Return Fund, L.P. $1,250,000 1.92% 99,522 99,522 --
Post Total Return Offshore $ 250,000 * 19,904 19,904 --
Fund, Ltd.
The Opportunity Fund, LLC $1,500,000 2.31% 119,427 119,427 --
Post Opportunity Fund, L.P. $2,350,000 3.62% 187,102 187,102 --
----------------------------
* Less than 1%
(1) The number of conversion shares shown in the table above assumes
conversion of the full amount of notes held by such holder at the
maximum conversion rate of 79.62 shares per $1,000 principal amount
at maturity of notes. This conversion rate is subject to certain
adjustments. Accordingly, the number of shares of common stock
issuable upon conversion of the notes may decrease from time to time.
Under the terms of the indenture, fractional shares will not be
issued upon conversion of the notes. Cash will be paid instead of
fractional shares, if any.
(2) Except as noted in the table, assumes all of the notes and shares of
common stock issuable upon their conversion are sold in the offering.
29
PLAN OF DISTRIBUTION
The notes and the underlying common stock are being registered to
permit the resale of such securities by the holders of such securities from time
to time after the date of this prospectus. We will not receive any of the
proceeds from the sale by the selling securityholders of the notes or the
underlying common stock. We will bear the fees and expenses incurred in
connection with our obligation to register the notes and the underlying common
stock. However, the selling securityholders will pay all underwriting discounts,
commissions and agent's commissions, if any.
The selling securityholders may offer and sell the notes and the
underlying common stock from time to time in one or more transactions at fixed
prices, at prevailing market prices at the time of sale, at varying prices
determined at the time of sale or at negotiated prices. These prices will be
determined by the selling securityholder or by agreement between such holder and
underwriters or dealers who may receive fees or commissions in connection with
such sale. Such sales may be effected by a variety of methods, including the
following:
o in market transactions;
o in privately negotiated transactions;
o through the writing of options;
30
o in a block trade in which a broker-dealer will attempt to sell a
block of securities as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
o if we agree to it prior to the distribution, through one or more
underwriters on a firm commitment or best-efforts basis;
o through broker-dealers, who may act as agents or principals;
o directly to one or more purchasers;
o through agents; or
o in any combination of the above or by any other legally
available means.
In connection with the sales of the notes and the underlying common
stock, the selling securityholders may enter into hedging transactions with
broker-dealers, who may in turn engage in short sales of the offered securities,
deliver the notes and the underlying common stock to close out such short
positions, or loan or pledge the notes and the underlying common stock to
broker-dealers that in turn may sell such securities.
If a material arrangement with any underwriter, broker, dealer or
other agent is entered into for the sale of any notes and the underlying common
stock through a secondary distribution or a purchase by a broker or dealer, or
if other material changes are made in the plan of distribution of the notes and
the underlying common stock, a prospectus supplement will be filed, if
necessary, under the Securities Act disclosing the material terms and conditions
of such arrangement. The underwriter or underwriters with respect to an
underwritten offering of notes and the underlying common stock and the other
material terms and conditions of the underwriting will be set forth in a
prospectus supplement relating to such offering and, if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of the prospectus supplement. In connection with the sale of the notes
and the underlying common stock, underwriters will receive compensation in the
form of underwriting discounts or commissions and may also receive commissions
from purchasers of notes and underlying common stock for whom they may act as
agent. Underwriters may sell to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters or commissions from the purchasers for whom they may act as agent.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the notes or the underlying common
stock by the selling securityholders. Selling securityholders may decide to sell
all or a portion of the notes or the underlying common stock offered by them
pursuant to this prospectus or may decide not to sell notes or the underlying
common stock under this prospectus. In addition, any selling securityholder may
transfer, devise or give the notes or the underlying common stock by other means
not described in this prospectus. Any notes or underlying common stock covered
by this prospectus that qualify for sale pursuant to Rule 144 or Rule 144A of
the Securities Act may be sold under Rule 144 or Rule 144A rather than pursuant
to this prospectus.
The selling securityholders and any underwriters, broker-dealers or
agents participating in the distribution of the notes and the underlying common
stock may be deemed to be "underwriters" within the meaning of the Securities
Act, and any profit on the sale of the notes or common stock by the selling
securityholders and any commissions received by any such underwriters,
broker-dealers or agents may be deemed to be underwriting commissions under the
Securities Act. If the selling securityholders were deemed to be underwriters,
the selling securityholders may be subject to statutory liabilities including,
but not limited to, those of Sections 11, 12 and 17 of the Securities Act and
Rule 10b-5 under the Exchange Act.
The selling securityholders and any other person participating in
the distribution will be subject to the applicable provisions of the Exchange
Act and the rules and regulations under the Exchange Act, including, without
limitation, Regulation M, which may limit the timing of purchases and sales of
any of the notes and the underlying common stock by the selling securityholders
and any other relevant person. Furthermore, Regulation M may restrict the
ability of any person engaged in the distribution of the notes and the
underlying common stock to engage in market-making activities with respect to
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the particular notes and the underlying common stock being distributed. All of
the above may affect the marketability of the notes and the underlying common
stock and the ability of any person or entity to engage in market-making
activities with respect to the notes and the underlying common stock.
Under the securities laws of certain states, the notes and the
underlying common stock may be sold in those states only through registered or
licensed brokers or dealers. In addition, in certain states the notes and the
underlying common stock may not be sold unless the notes and the underlying
common stock have been registered or qualified for sale in the state or an
exemption from registration or qualification is available and complied with.
We have agreed to indemnify the selling securityholders against
certain civil liabilities, including certain liabilities arising under the
Securities Act, and the selling securityholders will be entitled to contribution
from us in connection with those liabilities. The selling securityholders will
indemnify us against certain civil liabilities, including liabilities arising
under the Securities Act, and will be entitled to contribution from the selling
securityholders in connection with those liabilities.
We are permitted to suspend the use of this prospectus under certain
circumstances relating to corporate developments, public filings with the
Securities and Exchange Commission (the "SEC") and similar events for a period
not to exceed 45 days in any three-month period and not to exceed an aggregate
of 120 days in any 12-month period. If the duration of such suspension exceeds
any of the periods above- mentioned, we have agreed to pay additional interest.
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DESCRIPTION OF THE NOTES
We have issued the notes (the "NOTES") under an indenture (the
"INDENTURE"), among us, the Guarantors and The Bank of New York, a New York
banking corporation, as trustee (the "TRUSTEE"). The following is a summary of
the material provisions of the Notes, the Indenture, the Registration Rights
Agreement and the Collateral Agreements. It does not include all of the
provisions of the Notes, the Indenture, the Registration Rights Agreement or the
Collateral Agreements. We urge you to read the Notes, the Indenture, the
Registration Rights Agreement and the Collateral Agreements because they, and
not this description, define your rights. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "TIA"). You can obtain a copy of
the Indenture, the Registration Rights Agreement and the Collateral Agreements
in the manner described under the "Where You Can Find More Information" section
of this prospectus. For the purposes of this "Description of the Notes,"
references to "THE COMPANY" refer to Empire Resorts, Inc. only and not to any of
its Subsidiaries and references to "COMMON SHARES" refer to shares of the
Company's common stock, par value $0.01 per share.
The Trustee will initially act as paying agent, conversion agent and
registrar for the Notes. You may present Notes for conversion, registration of
transfer and exchange at the offices of the registrar, which initially will be
the Trustee's corporate office. No service charge will be made for any
conversion, registration of transfer or exchange or redemption of Notes, but the
Company may require payment in certain circumstances of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith. The Company may change any paying agent, conversion agent and
registrar without notice to Holders. The Company will pay principal (and
premium, if any) on the Notes at the Trustee's corporate office in New York, New
York. At its option, the Company may pay interest and Liquidated Damages, if
any, at the Trustee's corporate trust office or by check mailed to the
registered address of each Holder.
The Indenture does not contain any financial covenants or any
restrictions on the payment of dividends or the repurchase of securities of the
Company.
GENERAL
THE NOTES
The Notes:
o are the Company's senior obligations;
o rank senior in right of payment to all of the Company's
existing and future subordinated indebtedness and PARI PASSU
in right of payment with all of the Company's existing and
future senior indebtedness;
o are unconditionally guaranteed, jointly and severally, on a
senior basis, by all of the Company's Subsidiaries (other
than the Company's Immaterial Subsidiaries), as described
under "--Guarantees" below; and
o are convertible into Common Shares, as described under
"--Conversion" below.
The Company has caused the Notes to be secured by substantially all
of the Company's and the Guarantors' tangible and intangible assets (other than
the Company's and the Guarantors' 232 acres of land in Monticello, New York,
their respective rights under the gaming facility management agreement with the
Cayuga Nation of New York and certain Excluded Assets) and a pledge of
substantially all of the Capital Stock of the Company's Subsidiaries, in each
case subject to Permitted Liens. The grant of a security interest in certain
other collateral and the pledge of the equity interests in certain other
subsidiaries may require the Company to obtain certain regulatory approvals
under New York gaming and racing laws. The Company has agreed to use its best
efforts to cause, including its best efforts to obtain all Required Consents
necessary to cause, the Notes to be secured by all of the Company's and the
Guarantors' additional tangible and intangible assets and a pledge of all of the
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additional Capital Stock of the Company's Subsidiaries. Additionally, the
Company will use its best efforts to cause, including its best efforts to obtain
all Required Consents necessary to cause, the Notes to become, on or prior to
April 22, 2005, if the Trigger Event shall have not yet occurred, secured by a
mortgage on the 232 acres of land in Monticello, New York. All of the Collateral
securing the Notes will be released upon the occurrence of the Trigger Event
and, accordingly, the Notes will be the Company's unsecured obligations from and
after the occurrence of the Trigger Event.
Prior to the occurrence of the Trigger Event, if the Company enters
into a Credit Agreement, although the Notes will be secured by a Lien on the
certain Collateral, the Lien on the collateral securing such Credit Agreement
will be senior to the Lien on any Collateral securing the Notes.
From and after the occurrence of the Trigger Event, although the
Notes will rank PARI PASSU in right of payment with all then existing and future
senior indebtedness of the Company, including the Company's obligations under
any Credit Agreement, the Notes will be unsecured obligations of the Company
while the borrowings under any such Credit Agreement may be secured by Liens on
substantially all of the assets of the Company and its Subsidiaries. As a
result, from and after the occurrence of the Trigger Event, the indebtedness of
the Company under a Credit Agreement (and any other secured indebtedness of the
Company) will effectively rank senior to the Notes to the extent of the value of
the assets securing such indebtedness.
THE GUARANTEES
The Notes are guaranteed by all of our Subsidiaries (other than any
Immaterial Subsidiary). Each Guarantee of a Guarantor:
o is a senior obligation of such Guarantor; and
o ranks senior in right of payment to all of such Guarantor's
existing and future subordinated indebtedness and PARI PASSU
in right of payment with all of such Guarantor's existing and
future senior indebtedness.
The Company and each Guarantor have caused the Guarantee of such
Guarantor to be secured by substantially all of such Guarantor's tangible and
intangible assets (other than the 232 acres of land in Monticello, New York,
rights under the gaming facility management agreement with the Cayuga Nation of
New York and certain Excluded Assets) and a pledge of substantially all of the
Capital Stock of the Guarantor's Subsidiaries, in each case subject to Permitted
Liens. The grant of a security interest in certain other collateral and the
pledge of the equity interests in certain other subsidiaries may require the
Company and each Guarantor to obtain certain regulatory approvals under New York
gaming and racing laws. The Company and each Guarantor have agreed to use their
respective best efforts to cause, including their respective best efforts to
obtain all Required Consents necessary to cause, the Guarantee of such Guarantor
to be secured by all of the Company's and the Guarantors' additional tangible
and intangible assets and a pledge of all of the additional Capital Stock of the
Guarantor's Subsidiaries. Additionally, the Company and each Guarantor will use
their respective best efforts to cause, including their respective best efforts
to obtain all Required Consents necessary to cause, the Guarantee of such
Guarantor to become, on or prior to April 22, 2005, if the Trigger Event shall
have not yet occurred, secured by a mortgage on the 232 acres of land in
Monticello, New York. All of the Collateral securing the Guarantees will be
released upon the occurrence of the Trigger Event and, accordingly, the
Guarantees will be the Guarantors' unsecured obligations from and after the
occurrence of the Trigger Event.
Prior to the occurrence of the Trigger Event, if the Company enters
into a Credit Agreement, although the Guarantees will be secured by a Lien on
certain Collateral, the Lien on the collateral securing such Credit Agreement
will be senior to the Lien on such Collateral securing the Guarantees.
From and after the occurrence of the Trigger Event, although each
Guarantee of a Guarantor will rank PARI PASSU in right of payment with all then
existing and future senior indebtedness of such Guarantor, including such
Guarantor's obligations under a Credit Agreement, the Guarantees will be
unsecured obligations of the Guarantors while the borrowings under a Credit
Agreement will be secured by Liens on substantially all of the assets of the
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Guarantors. As a result, from and after the occurrence of the Trigger Event, the
indebtedness of the Guarantors under a Credit Agreement (and any other secured
indebtedness of the Guarantors) will effectively rank senior to the Guarantees
to the extent of the value of the assets securing such indebtedness.
COLLATERAL
Pursuant to the terms of the Indenture, the Company and the
Guarantors have granted to the Trustee or one or more Collateral Agents security
interests in, and pledges in favor of the Trustee or one or more Collateral
Agents, substantially all of their respective tangible and intangible assets
(other than the Initial Premises, rights under the gaming facility management
agreement with the Cayuga Nation of New York and certain Excluded Assets) and
substantially all of the Capital Stock of the Subsidiaries of the Company and
the Guarantors), in each case, on a first priority basis and subject to
Permitted Liens. The grant of a security interest in certain other collateral
and the pledge of the equity interests in certain other subsidiaries may require
the Company and each Guarantor to obtain certain regulatory approvals under New
York gaming and racing laws. Pursuant to the terms of the Indenture, the Company
and the Guarantors have agreed to use their respective best efforts to grant,
including their respective best efforts to obtain all Required Consents
necessary to grant, to the Trustee or one or more Collateral Agents security
interests in, and pledges in favor of the Trustee or one or more Collateral
Agents, all of their respective additional tangible and intangible assets and
all of the additional Capital Stock of the Subsidiaries of the Company and the
Guarantors. Until the Required Consents are obtained, we will not be able to
grant to you a security interest in that portion of the aforementioned
Collateral to which such Required Consents relate. There can be no assurance
that all or any Required Consents will be obtained in a timely manner, if at
all.
Additionally, pursuant to the terms of the Indenture, the Company
will use its best efforts to, including its best efforts to obtain all Required
Consents necessary to, grant to the Trustee or one or more Collateral Agents
appointed by the Company a mortgage on the Initial Premises and any other
Premises then owned by the Company or any of the Guarantors, subject to
Permitted Liens. Until the Required Consents are obtained, we will not be able
to grant to you a security interest in the Initial Premises or any other
Premises. There can be no assurance that all or any Required Consents will be
obtained in a timely manner, if at all.
Additionally, prior to the occurrence of the Trigger Event, if the
Company enters into a Credit Agreement, although the Notes and the Guarantees
will be secured by a Lien on certain Collateral, the Lien on the collateral
securing such Credit Agreement will be senior to the Lien on any Collateral
securing the Notes and the Guarantees. In furtherance of the foregoing, each
Holder by accepting a Note, authorizes the Trustee or the Collateral Agents, if
any, to enter into the Intercreditor Agreement with the lenders under any Credit
Agreement or their agent. The Intercreditor Agreement will contain procedures
for enforcing such Liens, including the distribution of sale, insurance and
other proceeds resulting from the collateral securing any Credit Agreement and
the Notes and Guarantees. These procedures will, in many respects, limit the
rights of any Collateral Agent, the Trustee and the Holders to foreclose upon
the Collateral. For example, the lenders under the Credit Agreement or their
agent will, following the occurrence and during the continuance of an Event of
Default or an event of default under the Credit Agreement, have the sole and
exclusive right to make all decisions with respect to the foreclosure of any
Collateral, including the timing and method of any disposition thereof, for a
period of at least 90 days.
Upon the occurrence of an Event of Default prior to the occurrence
of the Trigger Event, the proceeds from the sale of the Collateral securing the
Notes may be insufficient to satisfy the Company's obligations under the Notes.
No appraisals of any of the Collateral have been prepared in connection with the
Offering. Moreover, the amount to be received upon such a sale would be
dependant upon many factors, including the condition, age and useful life of the
Collateral at the time of such sale, as well as the timing and manner of such
sale. By its nature, all or some of the Collateral will be illiquid and may have
no readily ascertainable market value. Accordingly, there can be no assurance
that the Collateral, if saleable, can be sold in a short period of time.
To the extent third parties hold Permitted Liens, such third parties
may have rights and remedies with respect to the property subject to such Liens
that, if exercised, could adversely affect the value of the Collateral. Given
the intangible nature of certain of the Collateral, any such sale of such
Collateral separately from the assets of the Company as a whole may not be
feasible. The ability of the Company or any Guarantor to grant a security
interest in certain Collateral may be limited by legal or other logistical
considerations. The ability of any Collateral Agent, the Trustee or the Holders
35
to realize upon the Collateral may be subject to certain bankruptcy law
limitations in the event of a bankruptcy. See "--Certain Bankruptcy and Other
Limitations" below.
RELEASE OF COLLATERAL
GENERAL RELEASE UPON THE OCCURRENCE OF THE TRIGGER EVENT. Upon the
occurrence of the Trigger Event, unless there shall have occurred and then be
continuing a Default of the type described in clause (1), (2) or (6) of the
definition of "Event of Default," all of the Collateral shall be released from
the Liens securing the Notes and the rights of the Holders to the benefits and
proceeds of the Collateral Agent's Liens on the Collateral will terminate and be
discharged. Thereafter, the Notes and Guarantees shall not be secured by any
collateral.
RELEASE OF EQUITY PLEDGES. The Lien on the Capital Stock of
Monticello Casino Management, LLC securing the Notes and the Guarantees will be
released, and the rights of the Holders to the benefits and proceeds of the
Collateral Agent's Liens on such Capital Stock will terminate and be discharged,
on the date that the Company delivers to the Trustee an Officers' Certificate
stating that (a) without submitting background and other information concerning
the Trustee or any Holder to the National Indian Gaming Commission, such release
is required in order to obtain the written approval of the gaming facility
management agreement from the Chairman of the National Indian Gaming Commission,
and (b) the Chairman of the National Indian Gaming Commission is expected to
give such approval within thirty (30) days of the delivery of such Officers'
Certificate; PROVIDED, that, if such approval is not so given within thirty (30)
days of the delivery of such Officers' Certificate, the Company shall promptly
cause such Lien to be reinstated.
RELEASE OF TRUST LAND. Upon the occurrence of each of the events
specified in clauses (1) and (2) of the definition of "Trigger Event" and on the
date of the transfer of the Trust Land into trust for the Cayuga Nation of New
York as contemplated by clause (3) of the definition of "Trigger Event", that
portion of the Collateral constituting the Trust Land shall be released from the
Liens securing the Notes and the rights of the Holders to the benefits and
proceeds of the Collateral Agent's Liens on the Trust Land will terminate and be
discharged.
ASSET SALE RELEASE. The Company and the Guarantors have the right to
obtain a release of items of Collateral in connection with an Applicable Asset
Sale permitted under the Indenture.
CERTAIN BANKRUPTCY AND OTHER LIMITATIONS
The right of a Collateral Agent or the Trustee, as the case may be,
to repossess and dispose or otherwise exercise remedies in respect of any
Collateral upon the occurrence of an Event of Default is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy proceeding
were to be commenced by or against the Company or any of the Guarantors prior to
a Collateral Agent or the Trustee, as the case may be, having repossessed and
disposed of the Collateral or otherwise completed the exercise of its remedies
with respect to the Collateral. Under the Bankruptcy Code, a secured creditor
such as a Collateral Agent or the Trustee, as the case may be, is prohibited
from repossessing its security from a debtor in a bankruptcy case, or from
disposing of security repossessed from such debtor, without bankruptcy court
approval. Moreover, the Bankruptcy Code permits the debtor to continue to retain
and to use collateral even though the debtor is in default under the applicable
debt instruments; provided that, under the Bankruptcy Code, the secured creditor
is given "adequate protection." The meaning of the term "adequate protection"
may vary according to circumstances, but it is intended in general to protect
the value of the secured creditor's interest in the collateral securing the
obligations owed to it and may include cash payments or the granting of
additional security, if and at such times as the bankruptcy court in its
discretion determines, for any diminution in the value of such collateral as a
result of the stay of repossession or disposition or any use of the collateral
by the debtor during the pendency of the bankruptcy case. In view of the lack of
a precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict how long
payments under the Notes or the Guarantees could be delayed following
commencement of a bankruptcy case, whether or when a Collateral Agent or the
Trustee, as the case may be, could repossess or dispose of the Collateral or
whether or to what extent Holders would be compensated for any delay in payment
or loss of value of the Collateral through the requirement of "adequate
protection."
Moreover, a Collateral Agent or the Trustee, as the case may be, may
need to evaluate the impact of the potential liabilities before determining to
foreclose on Collateral consisting of real property because a secured creditor
36
that holds a lien on real property may be held liable under environmental laws
for the costs of remediating or preventing release or threatened releases of
hazardous substances at such real property. Consequently, a Collateral Agent or
the Trustee, as the case may be, may decline to foreclose on such Collateral or
exercise remedies available if it does not receive indemnification to its
satisfaction from the Holders.
A Collateral Agent's or the Trustee's ability to foreclose on the
Collateral may be subject to lack of perfection, the consent of third parties,
prior liens and practical problems associated with the realization of such
Collateral Agent's or the Trustee's Lien on the Collateral.
PRINCIPAL, MATURITY AND INTEREST
The Notes were issued in fully registered form in denominations of
$1,000 and integral multiples thereof. The Indenture does not limit the maximum
principal amount of the Notes that the Company may issue. In connection with the
Offering, the Company issued Notes in an aggregate principal amount at maturity
of $65.0 million Subject to compliance with the terms of the Indenture,
including, without limitation, the covenant described below under "--Certain
Covenants--Limitation on Incurrence of Additional Indebtenness," the Company may
issue additional Notes ("ADDITIONAL NOTES") from time to time after the
Offering. The Notes offered hereby and any Additional Notes subsequently issued
under the Indenture will be treated as a single class for all purposes under the
Indenture, including, without limitation, interests, waivers, amendments and
offers to purchase.
The Notes will mature on July 31, 2014.
Interest on the Notes will be payable semiannually in cash on each
January 31 and July 31, commencing on January 31, 2005, to the Persons who are
registered Holders at the close of business on each January 15 and July 15
immediately preceding the applicable interest payment date. Interest on the
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from and including the Issue Date. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
The Notes currently accrue interest at an annual rate of 5 1/2%. In the event
that the Trigger Event shall have not occurred on or prior to July 31, 2005, the
Notes will accrue interest from and after July 31, 2005 at an annual rate of 8%;
PROVIDED, that, if at any time from and after July 31, 2005, the Trigger Event
shall occur, the annual rate at which interest shall accrue on the Notes shall
return to 5 1/2%.
The Company will pay interest on overdue principal at 1% per annum
in excess of the above rate and will pay interest on overdue installments of
interest at such higher rate to the extent lawful.
CONVERSION
The Holders of the Notes are entitled, at any time or from time to
time prior to maturity, redemption or repurchase, to convert all or part of
their Notes (in denominations of $1,000 or multiples thereof) into Common
Shares, initially at a conversion rate of 72.727 shares per each $1,000
principal amount of notes, which is equal to a conversion price of $13.75 per
share. The conversion rate is subject to adjustment upon the occurrence of
certain events as described below. Holders of Common Shares issued upon
conversion will not be entitled to receive any dividends payable to holders of
Common Shares as of any record time or date prior to the close of business on
the conversion date. The Company is not required to issue any fractional Common
Shares upon conversion of the Notes and instead will pay a cash adjustment in
respect of the fractional share not so issued based upon the last reported bid
price of the Common Shares on the last trading day before the date of
conversion.
A Holder of Notes may exercise the right of conversion by delivering
the Notes to be converted at the specified office of the conversion agent,
accompanied by a duly signed and completed notice of conversion, together with
any funds that may be required as described in the preceding paragraph. The
conversion date shall be the date on which the Note, the duly signed and
completed notice of conversion, and any funds that may be required as described
in the preceding paragraph shall have been so delivered. A Holder delivering a
Note for conversion will not be required to pay any taxes or duties which may be
payable relating to any transfer involved in the issuance and delivery of the
37
Common Shares issuable in such conversion, but will be required to pay any tax
or duty which may be payable in respect of any transfer involved in the issue or
delivery of the Common Shares in a name other than the Holder of the Note.
Certificates representing Common Shares will not be issued or delivered unless
all taxes and duties, if any, payable by the Holder have been paid. If any Note
is converted prior to the expiration of the holding period applicable for sales
thereof under Rule 144(k) under the Securities Act (or any successor provision),
the Common Shares issuable upon conversion will not be issued or delivered in a
name other than the Holder of the Note unless the applicable restrictions on
transfer have been satisfied. A Holder may surrender for conversion any of its
Notes that have been called for redemption at any time prior to the close of
business on the business day prior to the redemption date. A Holder that has
elected to have its Notes purchased in a Change of Control Offer or on the
Optional Put Date may only not convert its Notes if such election is withdrawn
by written notice of withdrawal delivered by the Holder to the Company and the
paying agent prior to the close of business on the business day immediately
preceding the date fixed for repurchase.
Upon any conversion of a Holder's Notes, in addition to the issuance
to such Holder of the Common Shares issuable upon conversion of such Notes, the
Company shall also pay to such Holder, at the time of the delivery of such
Common Shares, an amount in cash equal to the accrued and unpaid interest and
Liquidated Damages, if any, on the Notes so converted to the date of conversion.
Additionally, in the event that the conversion date in respect of
any conversion of a Holder's Notes shall occur prior to July 31, 2007, the
Company shall also pay to such Holder, at the time of the delivery of such
Common Shares, an amount equal to the Applicable Conversion Premium as of the
conversion date (the "CONVERSION MAKE-WHOLE AMOUNT"). The Company may, at its
option, elect to pay the Conversion Make-Whole Amount in cash or in Common
Shares, or in any combination thereof, as follows:
o in the event that the Company shall elect to pay the entire
Conversion Make-Whole Amount applicable to any Holder in cash,
the Company shall, at the time of the delivery to such Holder of
the Common Shares into which such Holder's Notes are being
converted, deliver to such Holder an amount in cash equal to the
Conversion Make-Whole Amount;
o in the event that the Company shall elect to pay the entire
Conversion Make-Whole Amount applicable to any Holder in Common
Shares, the Company shall, at the time of the delivery to such
Holder of the Common Shares into which such Holder's Notes are
being converted, deliver to such Holder additional Common Shares
in an amount equal to a quotient (x) the numerator of which
shall equal the Conversion Make-Whole Amount, and (y) the
denominator of which shall equal the product of (i) ninety five
percent (95%), times (ii) the average of the last reported bid
prices of Common Shares for the ten (10) consecutive trading
days prior to the delivery of such Holder's notice of conversion
(provided, that, the Company shall not be obligated to issue any
fractional Common Shares in payment of the Conversion Make-Whole
Amount and instead will pay a cash amount in respect of the
fraction share not so issued based upon the last reported bid
price of the Common Shares on the last trading day before the
date of conversion); and
o in the event that the Company shall elect to pay the Conversion
Make-Whole Amount applicable to any Holder in a combination of
cash and Common Shares, the Company shall, at the time of the
delivery to such Holder of the Common Shares into which such
Holder's Notes are being converted, deliver to such Holder (x)
cash in an amount equal to the portion of the Conversion
Make-Whole Amount that the Company has elected to pay in cash
and (y) additional Common Shares in an amount equal to a
quotient (i) the numerator of which shall equal the difference
of (A) the Conversion Make-Whole Amount, minus (B) the portion
of the Conversion Make-Whole Amount paid in cash pursuant to the
immediately preceding clause (x), and (ii) the denominator of
which shall equal the product of (A) ninety five percent (95%),
times (B) the average of the last reported bid prices of Common
Shares for the ten (10) consecutive trading days prior to the
delivery of such Holder's notice of conversion.
If the Trigger Event has not occurred on or prior to July 31, 2005,
the initial conversion rate per each $1,000 principal amount of notes shall be
reset based on a 15% premium to the average closing bid price of the Company's
common stock for the prior 10 trading days, PROVIDED, HOWEVER, that the new
initial conversion rate shall not reflect an initial conversion price in excess
of $13.75 or less than $12.56 per share.
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The conversion rate is subject to adjustment (under formulae set
forth in the Indenture) in the following circumstances:
(1) If the Company issues Common Shares as a dividend or
distribution on Common Shares, or if the Company effects any
subdivision, combination, split or reverse split of Common
Shares;
(2) If the Company issues to all or substantially all of the
holders of Common Shares any rights, options, warrants or other
securities (in any case other than in connection with a
stockholder rights plan) entitling them to subscribe for or
purchase Common Shares (or securities convertible into Common
Shares) at a purchase price less than (or having a conversion
price per share less than) the current market price of Common
Shares on the record date for stockholders entitled to receive
such rights, options, warrants or other securities (PROVIDED,
THAT, the conversion rate will be readjusted to the extent that
such rights, options, warrants, other securities or convertible
securities are not exercised or converted prior to the expiration
of the exercisability or convertibility thereof);
(3) If the Company dividends or distributes to all or
substantially all of the holders of Common Shares evidences of
the indebtedness, shares of capital stock of the Company or any
of its Subsidiaries, cash or assets, including securities but
excluding:
o those dividends, rights, options, warrants and
distributions referred to in clauses (1) and (2) above;
o dividends and distributions paid exclusively in cash
referred to in clause (4) below; and
o distributions in connection with a reclassification,
change, consolidation, merger, combination, sale or
conveyance resulting in a change in the conversion
consideration pursuant to the third succeeding paragraph
below;
(4) If the Company makes any cash dividend or distribution to all
or substantially all of the holders of Common Shares;
(5) If the Company or any of its Subsidiaries purchases Common
Shares pursuant to a tender offer or exchange offer which
involves an aggregate consideration per Common Share that exceeds
the last reported bid price of Common Shares on the trading day
next succeeding the last date on which tenders or exchanges may
be made pursuant to the tender offer or exchange offer.
No adjustment in the conversion rate will be required unless such
adjustment would require a change of at least one percent (1%) in the conversion
rate then in effect at such time. Any adjustment that would otherwise be
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
To the extent that the Company has a stockholder rights plan in
effect at the time of conversion of Notes into Common Shares, the Holder will
receive, in addition to the Common Shares into which such Notes are then
convertible, the rights under the rights plan unless the rights have separated
from the Common Shares before the time of such conversion, in which case the
conversion rate will be adjusted as if the Company had distributed to all
holders of Common Shares evidences of the indebtedness, shares of capital stock
of the Company or any of its Subsidiaries, cash, assets or securities as
described in clause (3) above, subject to readjustment in the event of the
expiration, termination or redemption of such rights.
In the case of:
o any reclassification or change of Common Shares (other than in
respect of a subdivision, combination, split or reverse split);
or
39
o a consolidation, merger or combination involving the Company or
a sale or conveyance to another Person of all or substantially
all of the Company's assets,
in each case as of a result of which the holders of Common Shares are entitled
to receive stock, other securities, other property or assets (including cash or
any combination thereof) with respect to or in exchange for Common Shares, the
Holders of the Notes then outstanding will be entitled thereafter to convert
such Notes into the kind and amount of shares of stock, other securities or
other property or assets (including cash or any combination thereof) which they
would have owned or been entitled to receive upon such reclassifaction, change,
consolidation, merger, combination, sale or conveyance had such Notes been
converted into Common Shares immediately prior to such consolidation, merger,
combination, sale or conveyance.
The Company may not become a party to any transaction of the types
contemplated above unless its terms are consistent with the foregoing.
In the event of a taxable distribution to holders of Common Shares
(or other transaction) which results in any adjustment of the conversion rate,
the Holders of the Notes may, in certain circumstances, be deemed to have
received a distribution subject to U.S. federal income tax as a dividend; in
certain other circumstances, the absence of such an adjustment may result in a
taxable dividend to the holders of Common Shares. See "Certain United States
Federal Income Tax Consequences."
The Company from time to time may, to the extent permitted by law,
increase the conversion rate of the Notes by any amount for any period of at
least twenty (20) days, in which case the Company shall give at least fifteen
(15) days' notice of such increase, if the Company's Board of Directors has made
a determination that such increase would be in the best interests of the
Company, which determination shall be conclusive. The Company may, at its
option, make such increases in the conversion rate, in addition to those set
forth above, as the Company's Board of Directors deems advisable to avoid or
diminish any U.S. federal income tax to holders of Common Shares resulting from
any dividend or distribution of shares (or rights to acquire shares) or from any
event treated as such for U.S. federal income tax purposes. See "Certain United
States Federal Income Tax Consequences."
GUARANTEES
The full and prompt payment of the Company's payment obligations
under the Notes and the Indenture is guaranteed, jointly and severally, by all
present and future, direct and indirect, Subsidiaries of the Company (other than
Immaterial Subsidiaries). Each Guarantor has fully and unconditionally
guaranteed on a senior basis (each a "GUARANTEE" and, collectively, the
"GUARANTEES"), jointly and severally, to each Holder and the Trustee, the full
and prompt performance of the Company's Obligations under the Indenture and the
Notes, including the payment of principal of, interest on, premium, if any, on
and Liquidated Damages, if any, on the Notes. As described above under
"Collateral", prior to the occurrence of the Trigger Event, and subject to the
obtainment of the Required Consents as described above under "Collateral", the
Guarantees will be secured by the Collateral. The Guarantee of each Guarantor
will rank senior in right of payment to all existing and future subordinated
Indebtedness of such Guarantor and equally in right of payment with all other
existing and future senior Indebtedness of such Guarantor. The obligations of
each Guarantor will be limited to the maximum amount which, after giving effect
to all other contingent and fixed liabilities of such Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under its
Guarantee or pursuant to its contribution obligations under the Indenture, will
result in the obligations of such Guarantor under the Guarantee not constituting
a fraudulent conveyance or fraudulent transfer under federal or state law. The
net worth of any Guarantor for such purpose shall include any claim of such
Guarantor against the Company for reimbursement and any claim against any other
Guarantor for contribution. Each Guarantor may consolidate with or merge into or
sell its assets to the Company or another Guarantor without limitation. See
"--Certain Covenants--Merger, Consolidation and Sale of Assets."
Notwithstanding the foregoing, a Guarantor will be released from its
Guarantee without any action required on the part of the Trustee or any Holder:
40
(1) if all of the Capital Stock issued by such Guarantor or all
or substantially all of the assets of such Guarantor are sold or
otherwise disposed of (including by way of merger or consolidation)
to a Person other than the Company or any of its Subsidiaries; or
(2) upon satisfaction and discharge of the Indenture or payment
in full of the principal of premium, if any, accrued and unpaid
interest and Liquidated Damages, if any, on the Notes and all other
Obligations that are then due and payable.
At the Company's request and expense, the Trustee will execute and deliver an
instrument evidencing such release. A Guarantor may also be released from its
obligations under its Guarantee in connection with a permitted amendment of the
Indenture. See "Modification of the Indenture."
RANKING
The Notes are the Company's senior obligations, rank senior in right
of payment to all of the Company's existing and future subordinated indebtedness
and rank PARI PASSU in right of payment with all of the Company's existing and
future senior indebtedness. As of September 30, 2004, other than the Notes, the
Company had no senior indebtedness. As described above under "Collateral", the
Notes will, prior to the occurrence of the Trigger Event, and subject to the
obtainment of the Required Consents as described above under "Collateral", be
secured by the Collateral. Additionally, prior to the occurrence of the Trigger
Event, if the Company enters into a Credit Agreement, although the Notes will be
secured by a Lien on certain Collateral, the Lien on the collateral securing
such Credit Agreement will be senior to the Lien on any Collateral securing the
Notes pursuant to the Intercreditor Agreement. After the occurrence of the
Trigger Event, although the Notes will rank PARI PASSU in right of payment with
all existing and future senior indebtedness of the Company, including the
Company's obligations under the Credit Agreement, the Notes will be unsecured
obligations of the Company while the borrowings under a Credit Agreement may be
secured by Liens on substantially all of the assets of the Company and its
Subsidiaries. As a result, after the occurrence of the Trigger Event, the
indebtedness of the Company under a Credit Agreement (and any other secured
indebtedness of the Company) will effectively rank senior to the Notes to the
extent of the value of the assets securing such indebtedness.
The Guarantee of each Guarantor is such Guarantor's senior
obligation, ranks senior in right of payment to all of such Guarantor's existing
and future subordinated indebtedness and ranks PARI PASSU in right of payment
with all of the Company's existing and future senior indebtedness. As of
September 30, 2004, the Guarantors had no senior indebtedness. As described
above under "Collateral", prior to the occurrence of the Trigger Event, and
subject to the obtainment of the Required Consents as described above under
"Collateral", the Guarantees will be secured by the Collateral. Prior to the
occurrence of the Trigger Event, if the Company enters into a Credit Agreement,
although the Guarantees will be secured by a Lien on certain Collateral, the
Lien on the collateral securing such Credit Agreement will be senior to the Lien
on any Collateral securing the Guarantees. Following the occurrence of the
Trigger Event, although each Guarantee of a Guarantor will rank PARI PASSU in
right of payment with all existing and future senior indebtedness of such
Guarantor, including such Guarantor's obligations under a Credit Agreement, the
Guarantees will be unsecured obligations of the Guarantors while the borrowings
under a Credit Agreement may be secured by Liens on substantially all of the
assets of the Guarantors. As a result, following the occurrence of the Trigger
Event, the indebtedness of the Guarantors under a Credit Agreement (and any
other secured indebtedness of the Guarantors) will effectively rank senior to
the Guarantees to the extent of the value of the assets securing such
indebtedness.
OPTIONAL REDEMPTION
At any time on or after July 31, 2007 but prior to July 31, 2009,
the Company may, at its option, redeem some or all of the Notes, upon not less
than thirty (30) nor more than sixty (60) days' notice, for cash at a redemption
price equal to 100% of the principal amount thereof plus the Applicable
Redemption Premium as of, and accrued and unpaid interest and Liquidated
Damages, if any, thereon to, the date of redemption, but only if the last
reported bid price of Common Shares has exceeded 150% of the conversion price
then in effect for at least twenty (20) trading days during the thirty (30)
consecutive trading day period ending on the trading day prior to the date on
which the Company mails the notice of redemption.
41
At any time on or after July 31, 2009, the Company may, at its
option, redeem some or all of the Notes upon not less than thirty (30) nor more
than sixty (60) days' notice, for cash at a redemption price equal to 100% of
the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of redemption.
Unless the Company defaults in the payment of the redemption price,
interest will cease to accrue on the Notes or portions thereof called for
redemption on the applicable redemption date.
REGULATORY REDEMPTION
If any Gaming Authority or Racing Authority requires that a Holder
or beneficial owner of Notes must be licensed, qualified or found suitable under
any applicable gaming law or racing law and such Holder or beneficial owner
fails to apply for a license, qualification or a finding of suitability within
30 days after being requested to do so by the Gaming Authority or Racing
Authority (or such lesser period that may be required by such Gaming Authority
or Racing Authority), or if such Holder or such beneficial owner is not so
licensed, qualified or found suitable, the Company shall have the right, at its
option, (1) to require such Holder or beneficial owner to dispose of such
Holder's or beneficial owner's Notes within 30 days of receipt of notice of such
finding by the applicable Gaming Authority or Racing Authority or such earlier
date as may be ordered by such Gaming Authority or Racing Authority or (2) to
redeem the Notes of such Holder or beneficial owner (possibly within less than
30 days following the notice of redemption, if so ordered by such Gaming
Authority or Racing Authority) at a redemption price equal to the lesser of (i)
100% of the principal amount thereof together with accrued and unpaid interest
and Liquidated Damages, if any, thereon to, the earlier of the date of
redemption, the date of the finding of unsuitability by such Gaming Authority or
Racing Authority, or such earlier date as may be required by such Gaming
Authority or Racing Authority (which may be less than 30 days following the
notice of redemption, if so ordered by such Gaming Authority or Racing
Authority), (ii) the Holder's cost, and (iii) any other amount as may be
required by applicable law or by such Gaming Authority or Racing Authority. The
Company shall notify the Trustee in writing of any such redemption as soon as
practicable and the redemption price of each Note to be redeemed.
The Holder or beneficial owner applying for a license, qualification
or a finding of suitability must pay all costs of the licensure and
investigation for such qualification or finding of suitability. Under the
Indenture, the Company is not required to pay or reimburse any Holder of the
Notes or beneficial owner who is required to apply for such license,
qualification or finding of suitability for the costs of the licensure and
investigation for such qualification or finding of suitability. Such expense
will, therefore, be the obligation of such Holder or beneficial owner.
Immediately upon the imposition by any Gaming Authority or Racing
Authority of a finding that any Holder or beneficial owner dispose of the Notes,
such Holder or beneficial Holder will have no further rights to exercise,
directly or indirectly, through any trustee, nominee or any other Person, (i)
any right conferred by the Notes (including, without limitation, the conversion
rights described under "--Conversion" above) or (ii) to receive any interest or
other distributions or payments with respect to the Note, except the redemption
price referred to above.
SELECTION AND NOTICE OF REDEMPTION
In the event that the Company chooses to redeem less than all of the
Notes, selection of the Notes for redemption will be made by the Trustee either:
(1) in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed;
or
(2) if the Notes are not then listed on a national securities
exchange, on a pro rata basis, by lot or by such method as the
Trustee may reasonably determine is fair and appropriate.
No Notes of a principal amount of $1,000 or less shall be redeemed in part and
Notes of a principal amount in excess of $1,000 may be redeemed in part in
multiples of $1,000 only.
42
Notice of redemption will be mailed by first-class mail at least
thirty (30) but not more than sixty (60) days before the redemption date to each
Holder to be redeemed at its registered address. If Notes are to be redeemed in
part only, the notice of redemption shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note (or appropriate adjustments to the amount and
beneficial interests in any global Note will be made).
MANDATORY REDEMPTION; OFFERS TO PURCHASE; OPEN MARKET PURCHASES
The Company is not required to make any mandatory redemption or
sinking fund payments with respect to the Notes. However, under certain
circumstances, the Company may be required to offer to purchase the Notes as
described under the captions "--Repurchase or Payment upon Change of Control"
and "--Repurchase at the Option of the Holder." The Company may at any time and
from time to time purchase Notes in the open market or otherwise.
REPURCHASE OR PAYMENT UPON CHANGE OF CONTROL
CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, each Holder will have
the right to require that the Company purchase all or a portion (in integral
multiples of $1,000) of such Holder's Notes using immediately available funds
pursuant to the offer described below (the "CHANGE OF CONTROL OFFER"), at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of repurchase.
Within thirty (30) days following the date upon which the Change of
Control occurred, the Company must send, by registered first-class mail, an
offer to each Holder, with a copy to the Trustee, which offer shall govern the
terms of the Change of Control Offer. Such offer shall state, among other
things, the purchase price and the purchase date, which must be no earlier than
thirty (30) days nor later than sixty (60) days from the date such notice is
mailed, other than as may be required by law (the "CHANGE OF CONTROL PAYMENT
DATE").
Holders electing to have a Note purchased pursuant to a Change of
Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the paying agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.
If only a portion of a Note is purchased pursuant to a Change of Control Offer,
a new Note in a principal amount equal to the portion thereof not purchased will
be issued in the name of the Holder thereof upon cancellation of the original
Note (or appropriate adjustments to the amount and beneficial interests in a
global Note will be made). Notes (or portions thereof) purchased pursuant to a
Change of Control Offer will be cancelled and cannot be reissued.
The Company will not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
If a Change of Control Offer is made, there can be no assurance that
the Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
One of the events that constitutes a Change of Control under the
Indenture is the disposition of "all or substantially all" of the Company's
assets under certain circumstances. This term has not been interpreted under New
York law (which is the governing law of the Indenture) to represent a specific
43
quantitative test. As a consequence, in the event Holders elect to require the
Company to purchase the Notes and the Company elects to contest such election,
there can be no assurance as to how a court interpreting New York law would
interpret the phrase under such circumstances.
The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CHANGE OF CONTROL MAKE-WHOLE PREMIUM
In the event that a Change of Control shall occur in which at least
ninety percent (90%) of the consideration received by the Company, any of the
Company's Subsidiaries and/or the holders of the Company's Capital Stock in
connection with such Change of Control is in the form of cash or cash
equivalents (a "QUALIFYING CHANGE OF CONTROL"), any Holder that elects not to
tender its Notes in the related Change of Control Offer shall be entitled to
receive a payment from the Company, on the related Change of Control Payment
Date, in an amount equal to a Change of Control Make-Whole Premium which will be
determined by reference to the table below and is based on the date on which
such Qualifying Change of Control becomes effective (the "EFFECTIVE DATE").
In connection with a Qualifying Change of Control Offer, the Company
will pay the Change of Control Make-Whole Premium in the form of consideration
into which the Common Shares were converted, exchanged or acquired in such
Qualifying Change of Control (provided, that, the Company shall pay cash in lieu
of fractional interests in any security or other property delivered in
connection with such Qualifying Change of Control). If the holders of Common
Shares receive or have the right to receive more than one form of consideration
in connection with such Qualifying Change of Control, then, for the purposes of
the foregoing, the forms of consideration in which the Change of Control
Make-Whole Premium will be paid will be in proportion to the relative values,
determined in accordance with the next paragraph, of the different forms of
consideration paid to the holders of Common Shares in connection with such
Qualifying Change of Control.
The value of such consideration to be delivered in respect of a
Change of Control Make-Whole Premium will be calculated as follows:
o securities that are traded on a United States national
securities exchange or approved for quotation on the Nasdaq
National Market or any similar system of automated dissemination
of quotations of securities prices will be valued based on
ninety eight percent (98%) of the average last reported bid
price of Common Shares for the ten (10) trading days up to, but
not including, the repurchase date;
o other securities, assets or property (other than cash) will be
valued based on ninety eight percent (98%) of the average of the
fair market value of such securities, assets or property (other
than cash) as determined by two independent
nationally-recognized banks selected by the Trustee (in
consultation with the Company); and
o cash will be valued at one hundred percent (100%).
The following table sets forth the Change of Control Make-Whole
Premiums (the Change of Control Make-Whole Premiums are depicted in percentages
of the principal amount of the Notes) that will be required to be paid in the
event that the applicable Effective Date of the Qualifying Change of Control
occurs during the period commencing on the dates set forth below:
44
CHANGE OF CONTROL
PERIOD COMMENCING ON: MAKE-WHOLE PREMIUM
--------------------- ------------------
July 31, 2004 16.5%
July 31, 2005 11.0%
July 31, 2006 5.5%
July 31, 2007 and thereafter 0.0%
REPURCHASE AT THE OPTION OF THE HOLDER
On July 31, 2009 (the "OPTIONAL PUT DATE"), each Holder will have
the right to require that the Company purchase any of such Holder's Notes or
portions thereof (in integral multiples of $1,000) for which an "Option of
Holder to Elect Purchase" form located on the reverse of the Note has been
properly delivered by the Holder and not withdrawn, subject to certain
additional conditions, at a purchase price in cash equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the Optional Put Date. Holders may submit their
Notes for repurchase to the paying agent at any time from the opening of
business on the date that is 20 business days prior to the Optional Put Date
until the close of business on the Optional Put Date.
The Company must send, by registered first-class mail, written
notice to each Holder, with a copy to the Trustee, not less than 20 business
days prior to the Optional Put Date, stating, among other things, the procedures
that the Holders must follow to require the Company to repurchase their Notes on
the Optional Put Date.
Payment of the repurchase price for a Note for which an "Option of
Holder to Elect Purchase" form has been delivered and not validly withdrawn is
conditioned upon delivery (including by book entry transfer) of the Note,
together with necessary endorsements, to the paying agent at any time after
delivery of the "Option of Holder to Elect Purchase" form. Payment of the
repurchase price for a Note will be made promptly following the later of the
Optional Put Date or the time of delivery of the Note.
There can be no assurance that the Company will have available funds
sufficient to pay the repurchase price for all the Notes that might be delivered
by Holders seeking to have their Notes repurchased on the Optional Put Date. In
the event the Company is required to purchase outstanding Notes on the Optional
Put Date, the Company expects that it would seek third party financing to the
extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing.
The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes on the Optional Put Date. To the extent that the provisions
of any securities laws or regulations conflict with the "Optional Put"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Optional Put" provisions of the Indenture by virtue
thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any Guarantor may incur
Indebtedness (including, without limitation, Acquired Indebtedness) if on the
date of the incurrence of such Indebtedness the Consolidated Fixed Charge
Coverage Ratio of the Company will be, after giving effect to the incurrence
thereof, greater than 2.0 to 1.0.
LIMITATION ON LIENS. Until the occurrence of the Trigger Event, the
Company will not, and will not cause or permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or permit or suffer to exist any
45
Liens (other than Permitted Liens) of any kind against or upon any of the
Collateral whether owned on the Issue Date or acquired after the Issue Date, or
any proceeds therefrom, or assign or otherwise convey any right to receive
income or profits therefrom.
LIMITATION ON ASSET SALES. Until the occurrence of the Trigger
Event, the Company will not, and will not permit any of its Subsidiaries to
consummate any Transfer of the Raceway Land. From and after the Issue Date until
the occurrence of the Trigger Event, the Company will not, and will not permit
any of its Subsidiaries to, consummate an Applicable Asset Sale unless:
(1) the Company or the applicable Subsidiary, as the case may be,
receives consideration at the time of such Applicable Asset Sale at least
equal to the Fair Market Value of the assets sold or otherwise disposed;
(2) at least 85% of the consideration received by the Company or the
Subsidiary, as the case may be, from such Applicable Asset Sale is in the
form of cash or Cash Equivalents and is received at the time of such
disposition; PROVIDED that the amount of any liabilities (as shown on the
most recent applicable balance sheet) of the Company or such Subsidiary
(other than liabilities that are by their terms subordinated to the Notes)
that are assumed by the transferee of any such assets shall be deemed to
be cash for purposes of this provision so long as the documents governing
such liabilities provide that there is no further recourse to the Company
or any of its Subsidiaries with respect to such liabilities; and
(3) upon consummation of such Applicable Asset Sale, the Company
shall apply, or cause such Guarantor to apply, the Net Cash Proceeds
relating to such Applicable Asset Sale within 89 days of receipt thereof
to make an investment in properties and assets that replace the properties
or assets that were the subject of such Applicable Asset Sale or in any
other properties and assets that will be used, or Capital Stock of a
Person engaged, in the business of the Company and the Guarantors as
existing on the Issue Date or in businesses reasonably related thereto
("REPLACEMENT ASSETS").
Within 90 day after an Applicable Asset Sale (each, a "NET PROCEEDS
OFFER TRIGGER DATE"), the Net Cash Proceeds from such Applicable Asset Sale that
shall have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clause (3) of the preceding paragraph (each a "NET PROCEEDS OFFER
AMOUNT") shall be applied by the Company or such Subsidiary to make an offer to
purchase (the "NET PROCEEDS OFFER") on a date (the "NET PROCEEDS OFFER PAYMENT
DATE") not less than 30 nor more than 45 days following the applicable Net
Proceeds Offer Trigger Date, from all Holders, the maximum principal amount of
Notes that may be purchased with the Net Proceeds Offer Amount at a price equal
to 100% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase; PROVIDED, HOWEVER,
that if at any time any non-cash consideration received by the Company or any
Subsidiary of the Company, as the case may be, in connection with any Applicable
Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest received with respect to any such non-cash consideration), then
such conversion or disposition shall be deemed to constitute an Applicable Asset
Sale hereunder on the date of such conversion or disposition, as the case may
be, and the Net Cash Proceeds thereof shall be applied in accordance with this
covenant.
The Company may defer any Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $2.5
million resulting from one or more Applicable Asset Sales in which case the
accumulation of such amount shall constitute a Net Proceeds Offer Trigger Date
(at which time, the entire unutilized Net Proceeds Offer Amount, and not just
the amount in excess of $2.5 million, shall be applied as required pursuant to
the immediately preceding paragraph). Upon the completion of each Net Proceeds
Offer, the Net Proceeds Offer Amount will be reset at zero.
In the event of the transfer of substantially all (but not all) of
the property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction permitted under "--Merger, Consolidation and Sale of
Assets," which transaction does not constitute a Change of Control, the
successor entity shall be deemed to have sold the properties and assets of the
Company and its Subsidiaries not so transferred for purposes of this covenant,
and shall comply with the provisions of this covenant with respect to such
deemed sale as if it constituted an Applicable Asset Sale. In addition, the Fair
Market Value of such properties and assets of the Company or its Subsidiaries
deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this
covenant.
46
Each notice of a Net Proceeds Offer shall be mailed first class,
postage prepaid, to the record Holders as shown on the register of Holders
within 20 days following the Net Proceeds Offer Trigger Date, with a copy to the
Trustee, and shall comply with the procedures set forth in the Indenture. Upon
receiving notice of the Net Proceeds Offer, Holders may elect to tender their
Notes in whole or in part in integral multiples of $1,000 in exchange for cash.
To the extent Holders properly tender Notes in an amount exceeding the Net
Proceeds Offer Amount, Notes of tendering Holders will be purchased on a PRO
RATA basis (based on amounts tendered). A Net Proceeds Offer shall remain open
for a period of 20 business days or such longer period as may be required by
law.
The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue of such
compliance.
MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the Company's assets whether as an
entirety or substantially as an entirety to any Person unless:
(1) either:
(a) the Company shall be the surviving or continuing
corporation; or
(b) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the Company (the "SURVIVING
ENTITY"):
(x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the
District of Columbia; and
(y) shall expressly assume, (i) by supplemental indenture
(in form and substance satisfactory to the Trustee), executed and
delivered to the Trustee, all of the Company's obligations under
the Notes, the Indenture and the Registration Rights Agreement,
including, but not limited to, the due and punctual payment of
the principal of, and interest and Liquidated Damages, if any, on
all of the Notes and the performance of every covenant of the
Company under the Notes, the Indenture, the Collateral Agreements
and the Registration Rights Agreement and (ii) prior to the
occurrence of the Trigger Event, by amendment, supplement or
other instrument (in form and substance satisfactory to the
Trustee or any Collateral Agent), executed and delivered to the
Trustee, all obligations of the Company under the Collateral
Agreements, and in connection therewith shall cause such
instruments to be filed and recorded in such jurisdictions and
take such other actions as may be required by applicable law to
perfect or continue the perfection of the Lien created under the
Collateral Agreements on the Collateral owned by or transferred
to the surviving entity;
(2) immediately after giving effect to such transaction
and the assumption contemplated by clause (1)(b)(y) above (including
giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred and any Lien granted in connection
with or in respect of such transaction), no Default or Event of
Default shall have occurred or be continuing;
(3) immediately after giving effect to such transaction
on a pro forma basis and the assumption contemplated by clause
(1)(b)(y) above (including giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred in
47
connection with such transaction), the Company or such Surviving
Entity, as the case may be, (a) shall have a Consolidated Net Worth
at least equal to the Consolidated Net Worth of the Company
immediately prior to such transaction and (b) shall be able to incur
at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the covenant described under
"--Limitation on Incurrence of Additional Indebtedness" above;
(4) the Company or the Surviving Entity, as the case may
be, shall have delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger,
sale, assignment, transfer, lease, conveyance or other disposition
and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with the applicable
provisions of the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied; and
(5) the Company or the Surviving Entity, as the case may
be, shall have delivered to the Trustee an Opinion of Counsel to the
effect that the holders will not recognize income, gain, or loss for
federal income tax purposes as a result of such transaction and will
be subject to federal income tax on the same amounts, in the same
manner and at the same time as would have been the case if such
transaction had not occurred.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more of the Company's
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Each Guarantor (other than any Guarantor whose Guarantee is to be
released in accordance with the terms of the Guarantee and the Indenture) will
not, and the Company will not cause or permit any Guarantor to, consolidate with
or merge with or into any Person, other than the Company or any other Guarantor
unless:
(1) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor) or to which
such sale, lease, conveyance or other disposition shall have been
made is a corporation organized and existing under the laws of the
United States or any State thereof or the District of Columbia;
(2) such entity assumes (i) by supplemental indenture
(in form and substance reasonably satisfactory to the Trustee),
executed and delivered to the Trustee, all of the obligations of the
Guarantor under the Guarantee and the performance of every covenant
of the Guarantee, the Indenture, the Registration Rights Agreement
and, to the extent applicable, the Intercreditor Agreement, and (ii)
prior to the occurrence of the Trigger Event, by amendment,
supplement or other instrument (in form and substance satisfactory
to the Trustee or any Collateral Agent), executed and delivered to
the Trustee, all obligations of the Guarantor under the Collateral
Agreements, and in connection therewith shall cause such instruments
to be filed and recorded in such jurisdictions and take such other
actions as may be required by applicable law to perfect or continue
the perfection of the Lien created under the Collateral Agreements
on the Collateral owned by or transferred to the surviving entity;
(3) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be
continuing; and
(4) immediately after giving effect to such transaction
on a pro forma basis and the assumption contemplated by clause (2)
above (including giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred in connection
with such transaction), the Company could satisfy the provisions of
clause (3)(a) and, in the event that such transaction shall occur
from and after the Issue Date but prior to the occurrence of the
Trigger Event, clause 3(b) of the first paragraph of this covenant.
REPORTS AND INFORMATION. The Company will mail copies of its annual
reports and quarterly reports mailed to its stockholders to the Holders of the
Notes. If the Company is not required to furnish annual or quarterly reports to
its stockholders, the Company will, upon request, mail to each Holder of Notes,
48
at such Holder's address as appearing on the Note register, audited annual
financial statements prepared in accordance with GAAP and unaudited condensed
quarterly financial statements. Such financial statements shall be accompanied
by management's discussion and analysis of the results of operations and
financial condition of the Company for the period reported upon in substantially
the form required under the rules and regulations of the SEC currently in
effect. The Company will furnish to the Holders or beneficial holders of Notes
or the Common Shares issued upon conversion of the Notes and prospective
purchasers thereof, upon their request, the information, if any, required under
Rule 144A(d)(4) under the Securities Act until such time as such securities are
no longer "restricted securities" within the meaning of Rule 144 under the
Securities Act, assuming these securities have not been owned by an affiliate of
the Company.
AUTHORIZATION AND LISTING. The Company will at all times reserve and
keep available out of its authorized and unissued Common Shares, solely for
issuance upon the conversion of the Notes, that number of Common Shares as shall
from time to time be issuable upon conversion of all of the Notes then
outstanding. The Company will use its reasonable best efforts to have the Common
Shares issuable upon conversion of the Notes approved for listing on the Nasdaq
Small Cap Market prior to the date of issuance of the Notes, subject to official
notice of issuance of such shares.
ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any of its
Subsidiaries acquires or creates another Subsidiary after the Issue Date (other
than any Immaterial Subsidiary) or any Immaterial Subsidiary shall cease to
constitute an Immaterial Subsidiary, then the Company shall cause such newly
acquired or created Subsidiary, or such former Immaterial Subsidiary, to:
(1) execute and deliver to the Trustee a supplemental
indenture in form reasonably satisfactory to the Trustee pursuant to
which such Subsidiary shall unconditionally guarantee on a senior
unsecured basis all of the Company's obligations under the Notes and
the Indenture on the terms set forth in the Indenture;
(2) (a) execute and deliver to a Collateral Agent or the
Trustee such amendments to the Collateral Agreements necessary or
advisable in order to grant to such Collateral Agent or the Trustee,
as applicable, for the benefit of the Holders, a first priority
perfected security interest in the Capital Stock of such new
Subsidiary, subject to Permitted Liens, which are owned by the
Company or such Subsidiary and required to be pledged pursuant to
the Collateral Agreements, and (b) subject to the terms of the
Intercreditor Agreement, deliver to a Collateral Agent or the
Trustee any certificates representing such Capital Stock together
with undated stock powers or instruments of transfer, as applicable,
endorsed in blank;
(3) cause such new Subsidiary to take such other actions
necessary or advisable to grant to such Collateral Agent or the
Trustee, as applicable, for the benefit of the Holders, a first
priority perfected security interest in the Collateral of such new
Subsidiary to the extent required pursuant to the Collateral
Agreements, subject to Permitted Liens, including the filing of
Uniform Commercial Code financing statements in such jurisdictions
as may be required by the Security Agreement or by law;
(4) take such further action and execute and deliver
such other documents specified in the Indenture to effect the
foregoing; and
(5) deliver to the Trustee an Opinion of Counsel that
such supplemental indenture and any other documents required to be
delivered have been duly authorized, executed and delivered by such
Subsidiary and constitutes a legal, valid, binding and enforceable
obligations of such Subsidiary and such other Opinions of Counsel
regarding the perfection of such Liens in the Collateral as provided
for in the Indenture.
Thereafter, such Subsidiary shall be a Guarantor for all purposes of the
Indenture.
IMPAIRMENT OF SECURITY INTEREST. Prior to the occurrence of the
Trigger Event:
49
(1) neither the Company nor any of the Guarantors will
take or omit to take any action which would materially adversely
affect or impair the Liens in favor of the Collateral Agent, on
behalf of itself, the Trustee and the Holders, with respect to the
Collateral;
(2) neither the Company nor any of the Guarantors shall
grant to any Person, or permit any Person to retain or maintain
(other than the Collateral Agent), any interest whatsoever in the
Collateral other than Permitted Liens;
(3) neither the Company nor any of the Guarantors will
enter into, or permit to exist, any agreement that requires the
proceeds received from any sale of Collateral to be applied to
repay, redeem, defease or otherwise acquire or retire any
Indebtedness of any Person, other than as permitted by the
Indenture, the Notes and the Collateral Agreements;
(4) the Company shall, and shall cause each Guarantor
to, at their sole cost and expense, execute and deliver all such
agreements and instruments as the Collateral Agent or the Trustee
shall reasonably request to more fully or accurately describe the
property intended to be Collateral or the obligations intended to be
secured by the Collateral Agreements; and
(5) the Company shall, and shall cause each Guarantor
to, at their sole cost and expense, file any such notice filings or
other agreements or instruments as may be required under applicable
law to perfect the Liens created by the Collateral Agreements.
REAL ESTATE MORTGAGES AND FILINGS. The Company will, and will cause
the Guarantors to, use their respective best efforts to, on or prior to April
22, 2005, if the Trigger Event shall have not yet occurred, (i) obtain the
Required Consents to grant Liens in favor of the Trustee or one or more
Collateral Agents by the filing of a Mortgage on (a) the fee interest in the 232
acres of land in Monticello, New York owned by the Company or a Guarantor on the
Issue Date (the "INITIAL PREMISES") and (b) each other fee interest in any real
property (together with the Initial Premises, individually and collectively, the
"PREMISES") that is either owned by the Company or any of the Guarantors as of
April 22, 2005 or acquired by the Company or any of the Guarantors after such
date, (ii) deliver to a Collateral Agent or the Trustee, as mortgagee,
fully-executed counterparts of Mortgages, duly executed by the Company or the
applicable Guarantor, together with evidence of the completion (or satisfactory
arrangements for the completion), of all recordings and filings of such Mortgage
as may be necessary or desirable, to create a valid, perfected Lien, subject to
Permitted Liens, against the Premises purported to be covered thereby; (iii)
will deliver to a Collateral Agent or the Trustee mortgagee's title insurance
policies in favor of such Collateral Agent or the Trustee, as applicable, as
mortgagee for the ratable benefit of the Collateral Agent, the Trustee and the
Holders in customary form and issued by a nationally recognized title insurance
company in an amount equal to 125% of the Fair Market Value of the Premises
purported to be covered by the related Mortgage, insuring that title to such
property is marketable and that the interests created by the Mortgage constitute
valid Liens thereon free and clear of all Liens, defects and encumbrances other
than Permitted Liens, and such policies shall also include, to the extent
available, a revolving credit endorsement and such other endorsements as such
Collateral Agent or the Trustee, as applicable, shall reasonably request and
shall be accompanied by evidence of the payment in full of all premiums thereon;
(iv) deliver to a Collateral Agent or the Trustee, with respect to the Premises,
the most recent survey of the Premises, together with either (a) an updated
survey certification in favor of such Collateral Agent or the Trustee, as
applicable, from the applicable surveyor stating that, based on a visual
inspection of the property and the knowledge of the surveyor, there has been no
change in the facts depicted in the survey or (b) an affidavit from the Company
and the Guarantors stating that there has been no change, other than, in each
case, changes that do not materially adversely affect the use by the Company or
Guarantor, as applicable, of the Premises for the Company or such Guarantor's
business as so conducted, or intended to be conducted, at the Premises and (v)
cause to be delivered to the Trustee or such Collateral Agents an Opinion of
Counsel substantially in the form of the one attached as an exhibit to the
Indenture relating to this covenant.
The Company will use its best efforts to deliver all items required
to be delivered pursuant to clauses (i), (ii), (iii), (iv) and (v) above, (x)
with respect to the Initial Premises, on or prior to April 22, 2005 and (y) with
respect to any other Premises, on or prior to the later of April 22, 2005 and 30
days after the date of acquisition thereof.
50
EVENTS OF DEFAULT
The following events are defined in the Indenture as "EVENTS OF
DEFAULT":
(1) the failure to pay interest and Liquidated Damages,
if any, on any Notes or any other amount (other than principal for
the Notes) when the same becomes due and payable and the default
continues for a period of thirty (30) days;
(2) the failure to pay the principal of or premium, if
any, on any Notes, when such principal becomes due and payable, at
maturity, upon redemption or repurchase or otherwise (including the
failure to make a payment to purchase Notes properly tendered on the
Optional Put Date or pursuant to a Change of Control Offer or Net
Proceeds Offer);
(3) a default in the observance or performance of any
other covenant or agreement contained in the Indenture (other than
the payment of the principal of, or premium, if any, or interest or
and Liquidated Damages, if any, on any Note) which default continues
for a period of thirty (30) days after the Company receives written
notice specifying the default (and demanding that such default be
remedied) from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the Notes (except in the case of a
default with respect to the covenant described under "Certain
Covenants--Merger, Consolidation and Sale of Assets," which will
constitute an Event of Default with such notice requirement but
without such passage of time requirement);
(4) the failure to pay at final maturity (giving effect
to any applicable grace periods and any extensions thereof) the
principal amount of any indebtedness of the Company or any
Subsidiary of the Company, or the acceleration of the final stated
maturity of any such indebtedness (which acceleration is not
rescinded, annulled or otherwise cured within twenty (20) days from
the date of acceleration) if the aggregate principal amount of such
indebtedness, together with the principal amount of any other such
indebtedness in default for failure to pay principal at final
maturity or which has been accelerated (in each case with respect to
which the 20-day period described above has elapsed), aggregates $5
million or more at any time;
(5) one or more judgments in an aggregate amount in
excess of $5 million shall have been rendered against the Company or
any of its Subsidiaries (other than any judgment as to which a
reputable and solvent third party insurer has accepted full
coverage) and such judgments remain undischarged, unpaid or unstayed
for a period of sixty (60) days after such judgment or judgments
become final and non-appealable;
(6) certain events of bankruptcy affecting the Company
or any of its Significant Subsidiaries;
(7) the failure by the Company to deliver Common Shares,
cash or other property upon conversion of the Notes as required
under the Indenture and such failure continues for a period of 10
days;
(8) any Guarantee of a Significant Subsidiary ceases to
be in full force and effect or any Guarantee of a Significant
Subsidiary is declared to be null and void and unenforceable or any
Guarantee of a Significant Subsidiary is found to be invalid or any
Guarantor denies its liability under its Guarantee (other than by
reason of release of a Guarantor in accordance with the terms of the
Indenture);
(9) prior to the occurrence of the Trigger Event, any
Collateral Agreement at any time for any reason shall cease to be in
full force and effect, or ceases to give the Collateral Agent the
Liens, rights, powers and privileges purported to be created
thereby, superior to and prior to the rights of all third Persons
other than the holders of Permitted Liens and subject to no other
Liens except as expressly permitted by the applicable Collateral
Agreement, or any of the Collateral Agreements is declared null and
void; and
(10) the Company or any of the Guarantors, directly or
indirectly, contest in any manner the effectiveness, validity,
binding nature or enforceability of any Collateral Agreement;
51
If an Event of Default (other than an Event of Default specified in
clause (6) above with respect to the Company) shall occur and be continuing and
has not been waived, the Trustee or the Holders of at least 25% in principal
amount of outstanding Notes may declare the principal of and premium, if any,
accrued interest and Liquidated Damages, if any, on all the Notes to be due and
payable by notice in writing to the Company and the Trustee specifying the Event
of Default and that it is a "notice of acceleration" (the "ACCELERATION
NOTICE"), and the same shall become immediately due and payable.
If an Event of Default specified in clause (6) above with respect to
the Company occurs and is continuing, then all unpaid principal of, and premium,
if any, and accrued and unpaid interest and Liquidated Damages, if any, on all
of the outstanding Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraphs,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences:
(1) if the rescission would not conflict with any
judgment or decree;
(2) if all existing Events of Default have been cured or
waived except nonpayment of principal, premium, if any, interest or
Liquidated Damages, if any, that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue
principal and premium, if any, and Liquidated Damages, if any, which
has become due otherwise than by such declaration of acceleration,
has been paid; and
(4) if the Company has paid the Trustee its reasonable
compensation and reimbursed the Trustee for its reasonable expenses,
disbursements and its advances.
No such rescission shall affect any subsequent Default or impair any
right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive
any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or premium, if
any, interest or Liquidated Damages, if any, on any Notes.
Holders may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee indemnity satisfactory to the Trustee. Subject to the
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
No past, present or future director, officer, employee,
incorporator, or stockholder of the Company or any Guarantor, as such, shall
have any liability for any obligations of the Company or such Guarantor under
the Notes, the Guarantees or the Indenture or for any claim based on, in respect
of, such obligations or their creation. Each Holder by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
Under the Indenture, the Company is required to provide an Officers'
Certificate to the Trustee promptly upon any Officer obtaining knowledge of any
Default or Event of Default that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof. In addition, an Officers'
Certificate shall be provided at least annually as to whether or not such
Officers know of any Default or Event of Default.
52
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the Trustee,
without the consent of the Holders, may amend, modify or supplement the
Indenture, the Notes, the Guarantees and the Collateral Agreements:
(1) to cure any ambiguity, defect or inconsistency
contained therein;
(2) to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided, that, such
uncertificated Notes are issued in registered form for the purposes
of Section 163(f) of the Internal Revenue Code of 1986, as amended,
in a manner such that the uncertificated Notes are described in
Section 163(f)(2)(b) of the Internal Revenue Code of 1986, as
amended);
(3) to provide for the assumption of the Company's or
Guarantor's obligations to Holders in accordance with the covenant
described under "Certain Covenants--Merger, Consolidation and Sale
of Assets";
(4) to make any change that would provide any additional
rights or benefits to the Holders or that does not adversely affect
the legal rights of any such Holder under the Indenture, the Notes
or the Guarantees;
(5) to allow any Subsidiary of the Company or any other
Person to guarantee the Notes;
(6) to release a Guarantor as permitted by the Indenture
and the relevant Guarantee;
(7) if necessary, in connection with any addition or
release of any Collateral permitted or required under the terms of
the Indenture or the Collateral Agreements;
(8) to surrender any right or power conferred upon the
Company;
(9) to increase the conversion rate (provided, that, the
increase will not adversely affect the interest of the Holders); or
(10) to comply with requirements of the SEC in order to
effect or maintain the qualification of the Indenture under the TIA,
so long as such amendment, modification or supplement does not, in the opinion
of the Trustee, adversely affect the rights of any of the Holders in any
material respect. In formulating its opinion on such matters, the Trustee will
be entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an Opinion of Counsel.
Other amendments of, modifications to and supplements to the
Indenture, the Notes, the Guarantees, the Registration Rights Agreement and the
Collateral Agreements may be made with the consent of the Holders of a majority
in principal amount of the then outstanding Notes issued under the Indenture,
except that, without the consent of each Holder affected thereby, no amendment
may:
(1) reduce the amount of Notes whose Holders must
consent to an amendment, supplement or waiver of any provision of
the Indenture or the Notes;
(2) reduce the rate of or change or have the effect of
changing the time for payment of interest, including defaulted
interest, or Liquidated Damages on any Notes;
(3) reduce the principal of or change or have the effect
of changing the fixed maturity of any Notes, or change the date on
which any Notes may be subject to redemption or repurchase or reduce
the redemption or repurchase price therefor;
53
(4) make any Notes payable in money other than that
stated in the Notes;
(5) make any change in provisions of the Indenture
protecting the right of each Holder to receive payment of principal
of, premium, if any, interest and Liquidated Damages, if any, on
such Note on or after the due date thereof or to bring suit to
enforce such payment, or permitting Holders of a majority in
principal amount of Notes to waive Defaults or Events of Default;
(6) amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control
Offer after the occurrence of a Change of Control or to repurchase
Notes on the Optional Put Date or modify any of the provisions or
definitions with respect thereto;
(7) release any Guarantor from any of its obligations
under its Guarantee or the Indenture otherwise than in accordance
with the terms of the Indenture;
(8) impair or adversely affect the conversion rights of
any Holder of Notes;
(9) modify the redemption provisions of the Indenture in
a manner adverse to the Holders of the Notes; or
(10) release all or substantially all of the Collateral,
except as required pursuant to the terms of the Indenture and the
Collateral Agreements.
REGISTRATION RIGHTS
The following summary of the registration rights provided in the
Registration Rights Agreement and the Notes is not complete. You should refer to
the Registration Rights Agreement and the Notes for a full description of the
registration rights that apply to the Notes.
Pursuant to the Registration Rights Agreement, the Company agreed to
file a shelf registration statement under the Securities Act not later than 90
days after the Issue Date to register resales of the Notes and the Common Shares
into which the Notes are convertible. The Notes and the Common Shares issuable
upon conversion of the Notes are referred to collectively as "registrable
securities." The Company will use its reasonable best efforts to have this shelf
registration statement declared effective as promptly as practicable but not
later than 150 days after the Issue Date, and to keep it effective until the
earliest of the following to occur:
(1) all of the registrable securities shall have been
sold pursuant to the shelf registration statement;
(2) the holders of the registrable securities that are
not affiliates of the Company are able to sell all such registrable
securities immediately pursuant to Rule 144(k) under the Securities
Act;
(3) the date when all of the registrable securities have
ceased to be outstanding; and
(4) the date that is two years following the filing of
the shelf registration statement.
The Company will be permitted to suspend the use of the prospectus
which is a part of the registration statement for a period not to exceed an
aggregate of 120 days in any twelve-month period under certain circumstances
relating to pending corporate developments, public filings with the SEC and
similar events.
A holder of registrable securities that sells registrable securities
pursuant to the shelf registration statement generally will be required to
provide information about itself and the specifics of the sale, be named as a
selling securityholder in the related prospectus, deliver a prospectus to
purchasers, be subject to relevant civil liability provisions under the
Securities Act in connection with such sales and be bound by the provisions of
the Registration Rights Agreement.
54
If:
(1) on or prior to the 90th day following the Issue
Date, the shelf registration statement has not been filed with the
SEC;
(2) on or prior to the 150th day from the date of
issuance of the Notes, the shelf registration statement has not been
declared effective by the SEC; or
(3) after the shelf registration statement has been
declared effective, such shelf registration statement ceases to be
effective or usable (subject to certain exceptions) in connection
with resales of the Notes and the Common Shares issuable upon the
conversion of the Notes in accordance with and during the periods
specified in the Registration Rights Agreement and (A) unless the
Company declares a suspension period to be in effect, the Company
does not cure the shelf registration statement within five business
days by a post-effective amendment or a report filed pursuant to the
Exchange Act, or (B) if applicable, the Company does not terminate
the suspension period described above by the 135th day,
(each such event described above in clauses (1) through (3) is referred to
herein as a "registration default"), liquidated damages ("LIQUIDATED DAMAGES")
will accrue on the Notes in addition to the interest on the Notes at an amount
per week per $1,000 principal amount of Notes equal to $0.05 for the first
ninety (90) days immediately following the registration default, with such
liquidated damages increasing by an additional $0.05 per week per $1,000
principal amount of Notes with respect to each subsequent 90-day period, up to a
maximum of $0.25 per week per $1,000 principal amount of Notes. Accrued
Liquidated Damages shall be paid on each interest payment date to holders of the
Notes of record for the payment of interest.
The Company will give notice of its intention to file the shelf
registration statement, which notice is referred to herein as a "filing notice,"
to each of the holders of the Notes in the same manner as the Company would give
notice to holders of Notes under the Indenture. The filing notice will seek,
among other things, a determination from each of such holders as to whether such
holder elects to have its Notes and the Common Shares issuable upon conversion
thereof registered for sale pursuant to the shelf registration statement.
A holder of registrable securities who elects to sell any
registrable securities pursuant to the shelf registration statement will be
required to be named as a selling securityholder in the related prospectus, may
be required to deliver a prospectus to purchasers, may be subject to certain
civil liability provisions under the Securities Act in connection with those
sales and will be bound by the provisions of the Registration Rights Agreement,
including certain indemnification provisions.
The Company will give notice to all holders of registrable
securities who have provided it with the notice and questionnaire described
below of the effectiveness of the shelf registration statement. Each holder will
need to complete the notice and questionnaire attached as Annex A to the
offering circular prior to any intended distribution of its registrable
securities pursuant to the shelf registration statement.
No holder of registrable securities will be entitled to be named as
a selling securityholder in the shelf registration statement as of the date on
which the shelf registration statement is declared effective, such time is
referred to herein as the "effective time," and no holder of registrable
securities will be entitled to use the prospectus that is part of the shelf
registration statement for offers and resales of registrable securities at any
time, unless such holder has returned a completed and signed notice and
questionnaire to the Company by the deadline for response set forth in the
notice and questionnaire.
Beneficial owners of registrable securities who have not returned a
notice and questionnaire by the questionnaire deadline described above may
receive another notice and questionnaire from the Company upon request. When the
Company receives a completed and signed notice and questionnaire prior to the
effective date of the registration statement, it will include the registrable
securities covered thereby in the shelf registration statement.
BOOK ENTRY, DELIVERY AND FORM
Each Note has been issued as a book-entry Note in fully registered
form without coupons and is represented by a global Note that the Company
deposited with and registered in the name of a financial institution or its
55
nominee that it selected. The financial institution that the Company selected
for this purpose is referred to herein as the depositary. The Depositary Trust
Company, or DTC, is the depositary for all Notes issued in book-entry form.
Owners of beneficial interests in book-entry Notes are not entitled to physical
delivery of Notes in certificated form. The Company will make payments of
principal of, and premium, if any, and interest and Liquidated Damages, if any,
on the Notes through the Trustee to the depositary for the Notes.
DTC has advised the Company as follows: DTC is a limited purpose
trust company organized under the laws of the State of New York, a member of the
Federal Reserve System, a clearing corporation within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of institutions that have accounts with DTC, or "participants," and
to facilitate the clearance and settlement of securities transactions among its
participants through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers, banks,
trust companies, clearing corporations and may include certain other
organizations. Indirect access to DTC's book-entry system is also available to
others such as banks, brokers, dealers and trust companies, which are
collectively referred to in herein as "indirect participants," that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly.
The laws of some jurisdictions may require that certain purchasers
of securities take physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to transfer or pledge beneficial
interests in the global Notes.
So long as DTC (or its nominee) is the registered holder and owner
of a global Note, DTC (or such nominee) will be considered the sole legal owner
and holder of the Notes evidenced by such global Note for all purposes of such
Notes and the Indenture. Except as set forth below, as an owner of a beneficial
interest in a global Note, such holder will not be entitled to receive physical
delivery of certificated Notes and will not be considered to be the owner or
holder of any Notes under such global Note. The Company understands that, under
existing industry practice, in the event an owner of a beneficial interest in a
global Note desires to take any action that DTC, as the holder of such global
Note, is entitled to take, DTC would authorize the participants to take such
action, and the participants would authorize beneficial owners owning through
such participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
The Company will make payments of principal, premium, if any, and
interest and Liquidated Damages, if any, on the Notes represented by the global
Notes registered in the name of and held by DTC or its nominee to DTC or its
nominee, as the case may be, as the registered owner and holder of the global
Notes.
The Company expects that DTC (or its nominee), upon receipt of any
payment of principal, premium, if any, or interest and Liquidated Damages, if
any, on the global Notes will credit the accounts of their relevant participants
or account holders, as applicable, with payments in amounts proportionate to
their respective beneficial interests in the principal amount of the applicable
global Note as shown on the records of DTC (or its nominee). Ownership of
beneficial interests in the global Notes will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the global Notes will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by DTC
(with respect to participants' interests), the participants and the indirect
participants (with respect to the owners of beneficial interests in the global
Notes other than participants). All interests in a global Note deposited with
DTC are subject to the procedures and requirements of DTC.
The Company also expects that payments by participants or indirect
participants or account holders, as applicable, to owners of beneficial
interests in the global Notes held through such participants or indirect
participants or account holders will be governed by standing instructions and
customary practices and will be the responsibility of such participants or
indirect participants or account holders, as applicable. The Company will not
have any responsibility or liability for any aspect of the records relating to,
payments made on account of, beneficial ownership interests in the global Notes
for any Notes or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests or for any other aspect of the
relationship between DTC and its participants or indirect participants, or the
relationship between such participants or indirect participants, and the owners
of beneficial interests in the global Notes owning through such participants.
56
All amounts payable under the Notes will be payable in U.S. dollars,
except as may otherwise be stated in this prospectus or agreed between any
applicable securities clearing system and any holders. Payments will be subject
in all cases to any fiscal or other laws and regulations (including any
regulations of any applicable securities clearing system) applicable thereto.
None of the Trustee, the Company, or any of their respective agents shall be
liable to any holder of a global Note or other Person for any commissions,
costs, losses or expenses in relation to or resulting from any currency
conversion or rounding effected in connection therewith. Investors may be
subject to foreign exchange risks that may have important economic and tax
consequences to them.
Subject to certain conditions, the Notes represented by the global
Notes are exchangeable for certificated Notes in definitive form of like tenor
in denominations of $1,000 principal amount and multiples thereof if:
(1) DTC provides notification that it is unwilling or
unable to continue as depositary for the global Notes or DTC ceases
to be a clearing agency registered under the Exchange Act and, in
either case, a successor is not appointed within ninety (90) days;
or
(2) a Default entitling Note holders to accelerate the
maturity date has occurred and is continuing.
Any Note that is exchangeable as described above is exchangeable for
certificated Notes issuable in authorized denominations and registered in such
names as DTC shall direct. Subject to the foregoing, a global Note is not
exchangeable, except for a global Note of the same aggregate denomination to be
registered in the name of DTC (or its nominee).
GOVERNING LAW
The Indenture provides that it, the Notes, the Guarantees and the
Registration Rights Agreement will be governed by, and construed in accordance
with, the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application of the law, of
another jurisdiction would be required thereby.
NOTICES
Except as otherwise described herein, notice to Holders of the Notes
will be given by mail to their addresses as they appear in the Note register.
Notices will be deemed to have been given on the date of such mailing.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Subsidiary of the
Company or at the time it merges or consolidates with or into the Company or any
of its Subsidiaries or assumed in connection with the acquisition of assets from
such Person and in each case not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Subsidiary of the
Company or such acquisition, merger or consolidation and which Indebtedness is
without recourse to the Company or any of its Subsidiaries or to any of their
respective properties or assets other than the Person or the assets to which
such Indebtedness related prior to the time such Person became a Subsidiary of
the Company or the time of such acquisition, merger or consolidation.
"AFFILIATE" means, with respect to any specified Person, any other
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
provided, that Beneficial Ownership of 10% or more of the Voting Stock of the
Person shall be deemed to be control. The terms "CONTROLLING" and "CONTROLLED"
have meanings correlative of the foregoing.
57
"APPLICABLE ASSET SALE" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer, including by way of
dividend or distribution, by the Company or any of its Subsidiaries to any
Person other than the Company or a Guarantor of Collateral; provided, however,
that (i) the transfer of the Trust Land in trust for the Cayuga Nation of New
York as contemplated by clause (3) of the definition of "Trigger Event" shall
not constitute an Applicable Asset Sale and (ii) no Transfer of the Raceway Land
shall constitute an Applicable Asset Sale.
"APPLICABLE CONVERSION PREMIUM" means, with respect to any Notes
being converted into Common Shares on any conversion date, the present value, as
of such conversion date, of all required interest payments due on such Notes for
the period commencing on such conversion date through July 31, 2007 (less the
portion of the required interest payment required to be paid on the first
interest payment date immediately following such conversion date that shall have
accrued through the conversion date to the extent that such amounts have already
be included in the amounts payable to the Holder of such Notes pursuant to the
first sentence of the third paragraph under the heading "--Conversion" above),
computed using a discount rate equal to the Treasury Rate as of such conversion
date and assuming for the purposes of calculating the Applicable Conversion
Premium that the interest rate in effect as of the applicable conversion date
shall apply for all subsequent interest periods through July 31, 2007.
"APPLICABLE REDEMPTION PREMIUM" means, with respect to any Notes
being redeemed on any redemption date, the present value, as of such redemption
date, of all required interest payments due on such Notes for the period
commencing on such redemption date through July 31, 2009 (excluding accrued but
unpaid interest to the redemption date), computed using a discount rate equal to
the Treasury Rate as of such conversion date and assuming for the purposes of
calculating the Applicable Redemption Premium that the interest rate in effect
as of the applicable redemption date shall apply for all subsequent interest
periods through July 31, 2009.
"ASSET ACQUISITION" means:
(1) an investment by the Company or any Subsidiary of
the Company in any other Person pursuant to which such Person shall
become a Subsidiary of the Company or any Subsidiary of the Company,
or shall be merged with or into the Company or any Subsidiary of the
Company, or
(2) the acquisition by the Company or any Subsidiary of
the Company of the assets of any Person (other than a Subsidiary of
the Company) which constitute all or substantially all of the assets
of such Person or comprise all or substantially all of the assets of
any division or line of business of such Person or any other
significant properties or assets of such Person other than in the
ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer (other than a Lien in
accordance with the Indenture) for value by the Company or any of its
Subsidiaries to any Person other than the Company or a Guarantor of:
(1) any Capital Stock of any Subsidiary of the Company;
or
(2) any other property or assets of the Company or any
Subsidiary of the Company other than in the ordinary course of
business.
"BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978, as
amended, and codified as 11 U.S.C. ss.ss.101 ET SEQ.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the
beneficial ownership of any particular "person" (as that term is used in Section
13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire by
conversion or exercise of other securities, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition. The terms "BENEFICIALLY OWNS" and "BENEFICIALLY OWNED" have meanings
correlative to the foregoing.
58
"BOARD OF DIRECTORS" means, as to any Person, the board of directors
or similar governing body of such Person or any duly authorized committee
thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"CAPITAL STOCK" means:
(1) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock,
including each class of common stock and preferred stock of such
Person;
(2) with respect to any Person that is not a
corporation, any and all partnership, membership or other equity
interests of such Person; and
(3) any warrants, rights or options to purchase any of
the instruments or interests referred to in clause (1) or (2) above.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"CASH EQUIVALENTS" means:
(1) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or
issued by any agency thereof and backed by the full faith and credit
of the United States, in each case maturing within one year from the
date of acquisition thereof;
(2) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any
such state or any public instrumentality thereof maturing within one
year from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from
either Standard & Poor's Ratings Group ("S&P") or Moody's Investors
Service, Inc. ("MOODY'S");
(3) commercial paper maturing no more than one year from
the date of creation thereof and, at the time of acquisition, having
a rating of at least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued
by any bank organized under the laws of the United States of America
or any state thereof or the District of Columbia or any U.S. branch
of a foreign bank having at the date of acquisition thereof combined
net capital and surplus of not less than $250.0 million;
(5) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in
clause (1) above entered into with any bank meeting the
qualifications specified in clause (4) above; and
(6) investments in money market funds which invest
substantially all their assets in securities of the types described
in clauses (1) through (5) above.
"CHANGE OF CONTROL" means the occurrence of one or more of the
following events:
(1) any direct or indirect sale, lease, transfer,
conveyance or other disposition (other than by way of merger or
consolidation), in one transaction or a series of related
transactions, of all or substantially all of the assets of the
59
Company to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "GROUP"), other than a
transaction in which the transferee is controlled by one or more
Permitted Holders;
(2) the Company consolidates with, or merges with or
into, any Person, or any Person consolidates with, or merges with or
into, the Company, other than (A) a transaction in which the
surviving or transferee Person is a Person that is controlled by the
Permitted Holders or (B) any such transaction where the Voting Stock
of the Company outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than
Disqualified Capital Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting
Stock of such surviving or transferee Person (immediately after
giving effect to such issuance;
(3) the approval by the holders of Capital Stock of the
Company of any plan or proposal for the liquidation, winding up or
dissolution of the Company;
(4) any Person or Group is or becomes the Beneficial
Owner, directly or indirectly, in the aggregate of more than 50% of
the total voting power of the Voting Stock of the Company;
(5) any transaction or event (whether by means of an
exchange offer, liquidation, tender offer, consolidation, merger,
binding share exchange, combination, reclassification,
recapitalization or otherwise) in connection with which all or
substantially all of the Common Shares are exchanged for, converted
into, acquired for or constitute solely the right to receive,
consideration which is not all or substantially all common stock
that is either (a) listed on, or immediately after the transaction
or event will be listed on, a United States national securities
exchange, or (b) approved, or immediately after the transaction or
event will be approved, for quotation on the Nasdaq National Market
or any similar United States system of automated dissemination of
quotations of securities prices; or
(6) individuals who on the Issue Date constituted the
Board of Directors (together with any new directors whose election
by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved pursuant to a vote of a
majority of the directors then still in office who were either
directors on the Issue Date or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office.
"COLLATERAL" shall mean collateral as such term is defined in the
Security Agreement, all property from time to time mortgaged under the
Mortgages, all Capital Stock pledged pursuant to the Pledge Agreement, and any
other property, whether now owned or hereafter acquired, upon which a Lien
securing the Obligations is granted or purported to be granted under any
Collateral Agreement.
"COLLATERAL AGENT" means any collateral agent appointed by the
Trustee.
"COLLATERAL AGREEMENTS" means, collectively, the Security Agreement,
the Pledge Agreement, any Intercreditor Agreement and each Mortgage, in each
case, as the same may be in force from time to time in accordance with its
terms.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any
period, the sum (without duplication) of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been
reduced thereby:
(a) all income taxes of such Person and its
Subsidiaries paid or accrued in accordance with GAAP for
such period;
60
(b) Consolidated Interest Expense, and
interest attributable to write-offs of deferred
financing costs; and
(c) Consolidated Non-cash Charges less any
non-cash items increasing Consolidated Net Income for
such period.
all as determined on a consolidated basis for such Person and its Subsidiaries
in accordance with GAAP; PROVIDED, HOWEVER, that in determining Consolidated
EBITDA of the Company for (A) the Four Quarter Period ending on or about
September 30, 2004, Consolidated EBITDA of the Company shall be deemed to be
equal to the product of (x) Consolidated EBITDA of the Company for the period
from July 1, 2004 to the last day of such period, times (y) four (4), (B) the
Four Quarter Period ending on or about December 31, 2004, Consolidated EBITDA of
the Company shall be deemed to be equal to the product of (x) Consolidated
EBITDA of the Company for the period from July 1, 2004 to the last day of such
period, times (y) two (2), (C) the Four Quarter Period ending on or about March
31, 2005, Consolidated EBITDA of the Company shall be deemed to be equal to the
product of (x) Consolidated EBITDA of the Company for the period from July 1,
2004 to the last day of such period, times (y) a fraction, (1) the numerator of
which is equal to four (4) and (2) the denominator of which is equal to three
(3).
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to
any Person, the ratio of Consolidated EBITDA of such Person during the four
consecutive full fiscal quarters (the "FOUR QUARTER PERIOD") most recently
ending on or prior to the date of the transaction or event giving rise to the
need to calculate the Consolidated Fixed Charge Coverage Ratio for which
financial statements are available (the "TRANSACTION DATE") to Consolidated
Fixed Charges of such Person for the Four Quarter Period.
In addition to and without limitation of the foregoing, for purposes
of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall
be calculated after giving effect on a pro forma basis for the period of such
calculation to:
(1) the incurrence or repayment of any Indebtedness of
such Person or any of its Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation
and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence or
repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities,
occurring during the Four Quarter Period or at any time subsequent
to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case
may be (and the application of the proceeds thereof), occurred on
the first day of the Four Quarter Period); and
(2) any Asset Sale or other disposition or Asset
Acquisition (including, without limitation, any Asset Acquisition
giving rise to the need to make such calculation as a result of such
Person or one of its Subsidiaries (including any Person who becomes
a Subsidiary as a result of any such Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness during
the Four Quarter Period or at any time subsequent to the last day of
the Four Quarter Period and on or prior to the Transaction Date), as
if such Asset Sale or other disposition or Asset Acquisition
(including the incurrence, assumption or liability for any such
Indebtedness or Acquired Indebtedness and also including any
Consolidated EBITDA associated with such Asset Acquisition) occurred
on the first day of the Four Quarter Period provided that the
Consolidated EBITDA of any Person acquired shall be included only to
the extent includible pursuant to the definition of "Consolidated
Net Income." If such Person or any of its Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if such Person or any Subsidiary of such Person had
directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date (including Indebtedness
actually incurred on the Transaction Date) and which will continue
61
to be so determined thereafter shall be deemed to have accrued at a
fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; and
(2) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for
any period, the sum, without duplication, of:
(1) Consolidated Interest Expense (excluding
amortization or write-off of deferred financing costs); PLUS
(2) the product of (x) the amount of all dividend
payments on any series of Preferred Stock of such Person (other than
dividends paid in Qualified Capital Stock) paid, accrued or
scheduled to be paid or accrued during such period TIMES (y) a
fraction, the numerator of which is one and the denominator of which
is one minus the then current effective consolidated federal, state
and local tax rate of such Person, expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person
for any period, the aggregate of the interest expense of such Person and its
Subsidiaries for such period, on a consolidated basis, as determined in
accordance with GAAP, and including, without duplication, (a) all amortization
or accretion of original issue discount; (b) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person and its Subsidiaries during such period; and (c) net cash
costs under all Interest Swap Obligations (including amortization of fees).
"CONSOLIDATED NET INCOME" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided, however, that there shall be excluded therefrom:
(1) after-tax gains and losses from Asset Sales or
abandonments or reserves relating thereto; (2) after-tax items
classified as extraordinary gains or losses;
(3) the net income (but not loss) of any Subsidiary of
the referent Person to the extent that the declaration of dividends
or similar distributions by that Subsidiary of that income is
restricted by a contract, operation of law or otherwise;
(4) the net income of any Person, other than the
referent Person or a Subsidiary of the referent Person, except to
the extent of cash dividends or distributions paid to the referent
Person or to a Wholly-Owned Subsidiary of the referent Person by
such Person;
(5) any restoration to income of any material
contingency reserve, except to the extent that provision for such
reserve was made out of Consolidated Net Income accrued at any time
following the Issue Date;
(6) income or loss attributable to discontinued
operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued);
(7) all gains and losses realized on or because of the
purchase or other acquisition by such Person or any of its
Subsidiaries of any securities of such Person or any of its
Subsidiaries;
(8) the cumulative effect of a change in accounting
principles;
62
(9) interest expense attributable to dividends on
Qualified Capital Stock pursuant to Statement of Financial
Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity;"
(10) non-cash charges resulting from the impairment of
intangible assets; and
(11) in the case of a successor to the referent Person
by consolidation or merger or as a transferee of the referent
Person's assets, any earnings of the successor corporation prior to
such consolidation, merger or transfer of assets.
"CONSOLIDATED NET WORTH" of any Person means the consolidated
stockholders' equity of the Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person,
for any period, the aggregate depreciation, amortization and other non-cash
items and expenses of such Person and its Subsidiaries to the extent they reduce
Consolidated Net Income of such Person and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP (excluding any such
charges constituting an extraordinary item or loss or any such charge which
requires an accrual of or a reserve for cash charges for any future period).
"CREDIT AGREEMENT" means any agreement entered into from time to
time with banks or other institutional lenders providing for revolving credit
loans, term loans, receivables financing or letters of credit, or notes, bonds,
debentures or other securities, together with the related documents thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended, supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (provided that such
increase in borrowings is permitted under clause (2) or clause (14) of the
definition of the term "Permitted Indebtedness") or adding Subsidiaries of the
Company as additional borrowers or guarantors thereunder) all or any portion of
the Indebtedness under such agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect the
Company or any Subsidiary of the Company against fluctuations in currency
values.
"DEFAULT" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event (other than an event that would
constitute a Change of Control), matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or is redeemable at the sole option
of the holder thereof (except in each case, upon the occurrence of a Change of
Control) on or prior to the first anniversary of the final maturity date of the
Notes for cash or is convertible into or exchangeable for debt securities of the
Company or its Subsidiaries at any time prior to such anniversary.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"EXCLUDED ASSETS" shall have the meaning specified in the Security
Agreement.
"FAIR MARKET VALUE" means, with respect to any asset or property,
the price which could be negotiated in an arm's length, free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair Market
Value shall be determined by the Board of Directors of the Company acting in
good faith and shall be evidenced by a Board Resolution of the Board of
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Directors of the Company delivered to the Trustee; PROVIDED, HOWEVER, that for
purposes of the covenant under the caption "--Limitation on Asset Sales", if the
Fair Market Value of the property or assets in question is so determined to be
in excess of $1.0 million, such determination must be confirmed by an
independent investment banking firm, accounting firm or appraisal firm of
national standing.
"GAAP" means accounting principles generally accepted in the United
States set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect as of the
Issue Date.
"GAMING AUTHORITY" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States Federal government, any foreign government, any state,
province or city or other political subdivision or otherwise, whether now or
hereafter in existence, or any officer or official thereof, including, without
limitation, the National Indian Gaming Commission, the Bureau of Indian Affairs
and the Division of the Lottery of the State of New York, or any other agency,
in each case, with authority to regulate any gaming operation (or proposed
gaming operation) owned, managed or operated by the Company and its
Subsidiaries.
"GUARANTOR" means (1) each of the Company's Subsidiaries existing on
the Issue Date (other than any Immaterial Subsidiary) and (2) each of the
Company's Subsidiaries that in the future executes a supplemental indenture in
which such Subsidiary agrees to be bound by the terms of the Indenture as a
Guarantor; provided that any Person constituting a Guarantor as described above
shall cease to constitute a Guarantor when its respective Guarantee is released
in accordance with the terms of the Indenture.
"HOLDER" means the Person in whose name a Note is registered on the
registrar's books.
"IMMATERIAL SUBSIDIARY" means at any time, any Subsidiary of the
Company having total assets (as determined in accordance with GAAP) of less than
$50,000; provided, however, that the total assets of all Immaterial Subsidiaries
shall not exceed $500,000. In the event that the total assets of all Immaterial
Subsidiaries exceed $500,000, the Company will designate Subsidiaries that would
otherwise be Immaterial Subsidiaries to be excluded as Immaterial Subsidiaries
until such $500,000 threshold is met. Notwithstanding the foregoing, no
Subsidiary that guarantees any Obligations under the Credit Agreement shall be
deemed an Immaterial Subsidiary.
"INDEBTEDNESS" means with respect to any Person, without
duplication:
(1) all Obligations of such Person for borrowed money;
(2) all Obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as
the deferred purchase price of property, all conditional sale
obligations and all Obligations under any title retention agreement
(but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by
ninety (90) days or more or are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted
and any deferred purchase price represented by earn outs consistent
with the Company's past practice);
(5) all Obligations for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit
transaction, whether or not then due;
(6) guarantees and other contingent obligations in
respect of Indebtedness referred to in clauses (1) through (5) above
and clause (8) below;
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(7) all Obligations of any other Person of the type
referred to in clauses (1) through (6) which are secured by any Lien
on any property or asset of such Person, the amount of any such
Obligation being deemed to be the lesser of the Fair Market Value of
the property or asset securing such Obligation or the amount of such
Obligation;
(8) all Interest Swap Obligations and all Obligations
under Currency Agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person
with the amount of Indebtedness represented by such Disqualified
Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase
price, but excluding accrued dividends, if any.
Notwithstanding the foregoing, Indebtedness shall not include any
Qualified Capital Stock. For purposes hereof, the "MAXIMUM FIXED REPURCHASE
PRICE" of any Disqualified Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Disqualified
Capital Stock as if such Disqualified Capital Stock were purchased on any date
on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the Fair Market
Value of such Disqualified Capital Stock, such Fair Market Value shall be
determined reasonably and in good faith by the Board of Directors of the issuer
of such Disqualified Capital Stock.
"INTERCREDITOR AGREEMENT" means any Intercreditor Agreement among
the administrative agent and/or lenders under any Credit Agreement, the Trustee,
the Collateral Agent, the Company and the Guarantors, as the same may be
amended, supplements or modified from time to time.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"ISSUE DATE" means the date of original issuance of the Notes.
"LIEN" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"MORTGAGES" means the mortgages, deeds of trust, deeds to secure
debt or other similar documents delivered by the Company or any of the
Guarantors pursuant to the terms of the Indenture which create, in favor of the
Trustee or Collateral Agent, Liens on any fee interest in real property owned by
the Company or any of the Guarantors, as the case may be, as collateral security
for the payment obligations of the Company under the Indenture and the Notes or
of such Guarantor under its Guarantee, as the case may be.
"NET CASH PROCEEDS" means, with respect to any Applicable Asset
Sale, the proceeds in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (other than the portion of any such deferred payment
constituting interest) received by the Company or any of its Subsidiaries from
such Applicable Asset Sale net of:
(1) reasonable out-of-pocket expenses and fees relating
to such Applicable Asset Sale (including, without limitation, legal,
accounting and investment banking fees and sales commissions);
(2) all taxes and other costs and expenses actually
paid or estimated by the Company (in good faith) to be payable in
cash in connection with such Applicable Asset Sale;
65
(3) repayment of Indebtedness that is secured by the
property or assets that are the subject of such Applicable Asset
Sale and is required to be repaid in connection with such Applicable
Asset Sale; and
(4) appropriate amounts to be provided by the Company
or any Subsidiary, as the case may be, as a reserve, in accordance
with GAAP, against any liabilities associated with such Applicable
Asset Sale and retained by the Company or any Subsidiary, as the
case may be, after such Applicable Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Applicable
Asset Sale;
PROVIDED, HOWEVER, that if, after the payment of all taxes with respect to such
Applicable Asset Sale, the amount of estimated taxes, if any, pursuant to clause
(2) above exceeded the tax amount actually paid in cash in respect of such
Applicable Asset Sale, the aggregate amount of such excess shall, at such time,
constitute Net Cash Proceeds.
"OBLIGATIONS" means all obligations for principal, premium,
interest, Liquidated Damages, penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any
Indebtedness.
"OFFERING" means the initial offering of the Notes.
"OFFICER" means the Chief Executive Officer, the President, the
Chief Financial Officer or any Vice President of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers
of the Company, at least one of whom shall be the principal financial officer of
the Company, and delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel who shall be
reasonably acceptable to the Trustee.
"PERMITTED HOLDERS" means Robert A. Berman, Scott A. Kaniewski,
Thomas W. Aro, Morad Tahbaz, Joseph E. Bernstein and Ralph J. Bernstein and
their respective Affiliates.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the
following:
(1) Indebtedness under the Notes issued in the Offering
in an aggregate outstanding principal amount not to exceed $65.0
million and the related Guarantees;
(2) Indebtedness incurred pursuant to the Credit
Agreement in an aggregate principal amount at any time outstanding
not to exceed $10.0 million;
(3) other Indebtedness of the Company and its
Subsidiaries outstanding on the Issue Date;
(4) Interest Swap Obligations of the Company or any
Subsidiary of the Company covering Indebtedness of the Company or
any of its Subsidiaries; provided, however, that such Interest Swap
Obligations are entered into for the purpose of fixing or hedging
interest rates with respect to any fixed or variable rate
Indebtedness that is permitted by the Indenture to be outstanding to
the extent that the notional amount of any such Interest Swap
Obligation does not exceed the principal amount of Indebtedness to
which such Interest Swap Obligation relates;
(5) Indebtedness under Currency Agreements; provided
that in the case of Currency Agreements which relate to
Indebtedness, such Currency Agreements do not increase the
Indebtedness of the Company and its Subsidiaries outstanding other
than as a result of fluctuations in foreign currency exchange rates
or by reason of fees, indemnities and compensation payable
thereunder;
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(6) intercompany Indebtedness of the Company or a
Guarantor for so long as such Indebtedness is held by the Company or
a Guarantor; provided that if as of any date any Person other than
the Company or a Guarantor owns or holds any such Indebtedness or
holds a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness under this clause (6) by the issuer of such
Indebtedness;
(7) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn
against insufficient funds in the ordinary course of business;
provided, however, that such Indebtedness is extinguished within
three business days of incurrence;
(8) Indebtedness of the Company or any of its
Subsidiaries represented by letters of credit for the account of the
Company or such Subsidiary, as the case may be, in order to provide
security for workers' compensation claims, payment obligations in
connection with self-insurance or similar requirements in the
ordinary course of business;
(9) obligations in respect of performance, bid and
surety bonds and completion guarantees provided by the Company or of
its Subsidiaries in the ordinary course of business;
(10) Refinancing Indebtedness;
(11) Indebtedness represented by guarantees by the
Company or a Subsidiary of the Company of Indebtedness incurred by
the Company or a Subsidiary of the Company so long as the incurrence
of such Indebtedness by the Company or any such Subsidiary is
otherwise permitted by the terms of the Indenture;
(12) Indebtedness arising from agreements of the Company
or a Subsidiary of the Company providing for indemnification,
adjustment of purchase price or similar obligations, in each case,
incurred in connection with the disposition of any business, assets
or Subsidiary of the Company, other than guarantees of Indebtedness
incurred by any Person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such
acquisition; provided that the maximum aggregate liability in
respect of all such Indebtedness shall at no time exceed the gross
proceeds actually received by the Company and the Subsidiary of the
Company in connection with such disposition;
(13) Indebtedness of the Company or any of its
Subsidiaries to the extent the net proceeds thereof are promptly
used to redeem the Notes in full or deposited to defease or
discharge the Notes, in each case, in accordance with the Indenture;
(14) additional unsecured Indebtedness of the Company
and its Subsidiaries in an aggregate principal amount not to exceed
$2.5 million at any time outstanding; and
(15) from and after the occurrence of the Trigger Event,
additional Indebtedness, whether secured or unsecured, of the
Company and its Subsidiaries in an aggregate principal amount not to
exceed $150.0 million at any time outstanding.
For purposes of determining compliance with the covenant described
above under "--Certain Covenants--Limitation on Incurrence of Additional
Indebtedness," (a) the outstanding principal amount of any item of Indebtedness
shall be counted only once and (b) in the event that an item of Indebtedness
meets the criteria of more than one of the categories of Permitted Indebtedness
described in clauses (1) through (15) above or is entitled to be incurred
pursuant to the Consolidated Fixed Charge Coverage Ratio provisions of such
covenant, the Company shall, in its sole discretion, classify (or later
reclassify) such item of Indebtedness in any manner that complies with this
covenant. Accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms, and the payment of dividends on Disqualified
Capital Stock in the form of additional shares of the same class of Disqualified
Capital Stock will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Capital Stock for purposes of the covenant described
above under "--Certain Covenants--Limitation on Incurrence of Additional
Indebtedness."
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"PERMITTED LIENS" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges
or claims either (a) not delinquent or (b) contested in good faith
by appropriate proceedings and as to which the Company or its
Subsidiaries shall have set aside on its books such reserves as may
be required pursuant to GAAP;
(2) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law or pursuant to customary reservations or
retentions of title incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith, if such
reserve or other appropriate provision, if any, as shall be required
by GAAP shall have been made in respect thereof;
(3) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security, including
any Lien securing letters of credit issued in the ordinary course of
business consistent with past practice in connection therewith, or
to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, government contracts, performance
and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(4) any judgment Lien not giving rise to an Event of
Default;
(5) easements, rights-of-way, zoning restrictions and
other similar charges or encumbrances in respect of real property
not interfering in any material respect with the ordinary conduct of
the business of the Company or any of its Subsidiaries;
(6) Liens upon specific items of inventory or other
goods and proceeds of any Person securing such Person's obligations
in respect of bankers' acceptances issued or created for the account
of such Person to facilitate the purchase, shipment or storage of
such inventory or other goods;
(7) Liens securing reimbursement obligations with
respect to commercial letters of credit which encumber documents and
other property relating to such letters of credit and products and
proceeds thereof;
(8) Liens encumbering deposits made to secure
obligations arising from statutory, regulatory, contractual, or
warranty requirements of the Company or any of its Subsidiaries,
including rights of offset and set-off;
(9) Liens securing Interest Swap Obligations which
Interest Swap Obligations relate to Indebtedness that is otherwise
permitted under the Indenture;
(10) Liens securing Indebtedness under Currency
Agreements that are permitted under the Indenture;
(11) Liens securing Acquired Indebtedness incurred in
accordance with the covenant described under "--Certain
Covenants--Limitation on Incurrence of Additional Indebtedness"
above; provided that:
(a) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence
of such Acquired Indebtedness by the Company or a
Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence
of such Acquired Indebtedness by the Company or a
Subsidiary of the Company; and
(b) such Liens do not extend to or cover any
property or assets of the Company or of any of its
Subsidiaries other than the property or assets that
secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company
or a Subsidiary of the Company and are no more favorable
to the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired
Indebtedness by the Company or a Subsidiary of the
Company;
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(12) Liens existing as of the Issue Date and securing
Indebtedness permitted to be outstanding under clause (3) of the
definition of the term "Permitted Indebtedness" to the extent and in
the manner such Liens are in effect on the Issue Date;
(13) Liens securing the Notes and all other monetary
obligations under the Indenture and the Guarantees;
(14) Liens securing Indebtedness under the Credit
Agreement to the extent such Indebtedness is permitted under clause
(2) of the definition of the term "Permitted Indebtedness;" and
(15) Liens securing Refinancing Indebtedness which is
incurred to Refinance any Indebtedness which has been secured by a
Lien permitted under the covenant described under "--Certain
Covenants--Limitation on Liens" above and which has been incurred in
accordance with the covenant described under "--Certain
Covenants--Limitation on Incurrence of Additional Indebtedness"
above; provided, however, that such Liens: (i) are no less favorable
to the Holders and are not more favorable to the lienholders with
respect to such Liens than the Liens in respect of the Indebtedness
being Refinanced; and (ii) do not extend to or cover any property or
assets of the Company or any of its Subsidiaries not securing the
Indebtedness so Refinanced.
"PERSON" means an individual, partnership, corporation, limited
liability company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"PLEDGE AGREEMENT" means the Pledge Agreement, to be dated as of the
Issue Date, made by the Company and the Guarantors in favor of the Trustee or
Collateral Agent, as amended or supplemented from time to time in accordance
with its terms.
"PREFERRED STOCK" of any Person means any Capital Stock of such
Person that has preferential rights to any other Capital Stock of such Person
with respect to dividends or redemptions or upon liquidation.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not
Disqualified Capital Stock.
"RACING AUTHORITY" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States Federal government, any foreign government, any state,
province or city or other political subdivision or otherwise, whether now or
hereafter in existence, or any officer or official thereof, including, without
limitation, the New York State Racing and Wagering Board, or any other agency,
in each case, with authority to regulate any racing operation (or proposed
racing operation) owned, managed or operated by the Company and its
Subsidiaries.
"REFINANCE" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or
any Subsidiary of the Company of Indebtedness incurred in accordance with the
covenant described under "--Limitation on Incurrence of Additional Indebtedness"
(other than pursuant to Permitted Indebtedness) or clauses (1), (3) or (10) of
the definition of Permitted Indebtedness, in each case that does not:
(1) have an aggregate principal amount (or, if such
Indebtedness is issued with original issue discount, an aggregate
offering price) greater than the sum of (x) the aggregate principal
amount of the Indebtedness being Refinanced (or, if such
Indebtedness being Refinanced is issued with original issue
discount, the aggregate accreted value) as of the date of such
proposed Refinancing plus (y) the amount of fees, expenses, premium,
69
defeasance costs and accrued but unpaid interest relating to the
Refinancing of such Indebtedness being Refinanced;
(2) create Indebtedness with: (a) a Weighted Average
Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced; or (b) a final
maturity earlier than the final maturity of the Indebtedness being
Refinanced; or
(3) affect the security, if any, for such Refinancing
Indebtedness (except to the extent that less security is granted to
holders of such Refinancing Indebtedness).
If such Indebtedness being Refinanced is subordinate or junior by
its terms to the Notes, then such Refinancing Indebtedness shall be subordinate
by its terms to the Notes at least to the same extent and in the same manner as
the Indebtedness being Refinanced.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Issue Date, between the Company and Jefferies &
Company, Inc., as the initial purchaser, as the same may be amended or modified
from time to time in accordance with the terms thereof.
"REQUIRED CONSENTS" means all consents, approvals, filings,
registrations and notices required to be obtained or made under applicable
racing and gaming laws.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"SECURITY AGREEMENT" means the Security Agreement, to be dated as of
the Issue Date, made by the Company and the Guarantors in favor of the Trustee,
as amended or supplemented from time to time in accordance with its terms.
"SIGNIFICANT SUBSIDIARY" with respect to any Person, means any
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1-02(w) of Regulation S-X under the Exchange Act.
"SUBSIDIARY" with respect to any Person, means:
(1) any corporation of which the outstanding Capital
Stock having at least a majority of the votes entitled to be cast in
the election of directors under ordinary circumstances shall at the
time be owned, directly or indirectly, by such Person; or
(2) any other Person of which at least a majority of the
voting interest under ordinary circumstances is at the time,
directly or indirectly, owned by such Person.
"TRANSFER OF THE RACEWAY LAND" means any direct or indirect sale,
issuance, conveyance, transfer, lease (other than operating leases entered into
in the ordinary course of business), assignment or other transfer, including by
way of dividend or distribution, by the Company or any of its Subsidiaries to
any Person other than the Company or a Guarantor of all or any portion of the
portion of Initial Premises upon which the Monticello Raceway or any video
gaming machines are located.
"TREASURY RATE" means, with respect to any conversion date,
redemption date or date of a Change of Control, the lesser of (i) six and
one-half percent (6 1/2%) and (ii) the yield to maturity for a three year United
States Treasury security, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published statistical
release designated "H.15(519)" or any successor publication which is published
weekly by the Board of Governors of the Federal Reserve System and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities" (if such
release (or any successor release) is not published during the week preceding
the calculation date or does not contain such yields, any publicly available
source for similar market data).
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"TRIGGER EVENT" means the occurrence of each of:
(1) publication in the Federal Register of approval by
the Secretary of the Interior of a Class III gaming compact for the
Cayuga Catskill Resort;
(2) written approval of the gaming facility management
agreement on behalf of the chairman of the National Indian Gaming
Commission; and
(3) the 12 acres of land in Monticello, New York to be
used for the development of the Cayuga Catskill Resort having been
transferred to the United States in trust for the Cayuga Nation of
New York (such 12 acres of land, the "TRUST LAND").
"VOTING STOCK" means, with respect to any Person, securities of any
class or classes of Capital Stock of such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
Board of Directors (or equivalent governing body) of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (1) the then
outstanding aggregate principal amount of such Indebtedness into (2) the sum of
the total of the products obtained by multiplying:
(a) the amount of each then remaining
installment, sinking fund, serial maturity or other
required payment of principal, including payment at
final maturity, in respect thereof, by
(b) the number of years (calculated to the
nearest one-twelfth) which will elapse between such date
and the making of such payment.
"WHOLLY OWNED SUBSIDIARY" of any Person means any Subsidiary of such
Person of which all the outstanding Capital Stock are owned by such Person or
any Wholly Owned Subsidiary of such Person.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 75,000,000 shares of common
stock and 5,000,000 shares of preferred stock, of which 821,496 shares have been
designated Series B Preferred Stock, $.01 par value per share, 137,889 shares
have been designated Series C Preferred Stock, $.01 par value per share, 4,000
shares have been designated Series D Preferred Stock, $.01 par value per share,
and 1,730,697 shares have been designated Series E Preferred Stock, $.01 par
value per share.
The following description of our capital stock is based upon our
certificate of incorporation, amended and restated bylaws and applicable
provisions of law. We have summarized portions of our certificate of
incorporation and amended and restated bylaws below. The summary is not
complete. You should read our certificate of incorporation and amended and
restated bylaws for the provisions that are important to you.
COMMON STOCK
As of September 29, 2004 there were 26,074,942 shares of common
stock outstanding which were held of record by approximately 300 shareholders.
VOTING
Each holder of common stock is entitled to one vote for each share
on all matters to be voted upon by the holders of common stock.
DIVIDENDS
Subject to preferences that may be applicable to any then
outstanding preferred stock, holders of common stock are entitled to receive
ratably those dividends, if any, as may be declared from time to time by our
board of directors out of legally available funds.
LIQUIDATION
In the event of our liquidation, dissolution or winding up, holders
of common stock will be entitled to share ratably in the net assets legally
available for distribution to stockholders after the payment of all of our debts
and other liabilities and the satisfaction of any liquidation preferences that
may be granted to the holders of any then outstanding shares of preferred stock.
RIGHTS AND PREFERENCES
The common stock has no preemptive, conversion or other subscription
rights, and there are no redemption or sinking fund provisions applicable to the
common stock. The rights, preferences and privileges of the holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock, which we may designate and
issue in the future.
Our common stock is admitted for trading on the Nasdaq Small Cap
Market under the symbol "NYNY".
The transfer agent and registrar for our common stock is Continental
Stock Transfer and Trust Company.
PREFERRED STOCK
Our board of directors has the authority to issue preferred stock in
one or more series and to fix the voting powers, designations, preferences and
rights, and qualifications, limitations or restrictions thereof, of each such
series without any further vote or action by the stockholders. The issuance of
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preferred stock with voting rights superior to the common stock may have the
effect of delaying, deferring or preventing a change of control in us without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of common stock.
SERIES B PREFERRED STOCK
We are authorized to issue up to 821,496 shares of Series B
Preferred Stock, of which 44,258 shares are issued and outstanding. Each share
of Series B Preferred Stock is convertible into .8 of a share of common stock
and represents the right to .8 of a vote on all matters to be voted upon by the
holders of common stock. The holders of Series B Preferred Stock are entitled to
receive, out of assets legally available for payment, a cash dividend of $2.90
per annum per share of Series B Preferred Stock. This Series B dividend accrues
from the date of initial issuance and is payable on the first day of each
January, April, July and October. If any dividend on any share shall for any
reason not be paid at the time such dividend becomes due, such dividend in
arrears shall be paid as soon as payments are permissible under Delaware law.
However, any dividend payment which is not made on or before January 30 of the
following calendar year shall be payable in the form of shares of common stock
in such number of shares as shall be determined by dividing (A) the product of
(x) the amount of the unpaid dividend and (y) 1.3 by (B) the fair market value
of the common stock. Finally, in the event of our liquidation, dissolution or
winding up, the holders of our Series B Preferred Stock are entitled to receive
a preferential distribution of $29 per share, plus all unpaid accrued dividends.
SERIES C PREFERRED STOCK
We are authorized to issue up to 137,889 shares of Series C
Preferred Stock, none of which are issued and outstanding. Each share of Series
C Preferred Stock is convertible into 24 shares of common stock and represents
the right to 24 votes on all matters to be voted upon by the holders of common
stock. The holders of Series C Preferred Stock are entitled to receive, out of
assets legally available for payment, a cash dividend of $5.76 per annum per
share of Series C Preferred Stock. This Series C dividend accrues from the date
of initial issuance and is payable on the first day of each January, April, July
and October. If any dividend on any share shall for any reason not be paid at
the time such dividend becomes due, such dividend in arrears shall be paid as
soon as payments are permissible under Delaware law. However, any dividend
payment which is not made on or before January 30 of the following calendar year
shall be payable in the form of shares of common stock in such number of shares
as shall be determined by dividing (A) the product of (x) the amount of the
unpaid dividend and (y) 1.3 by (B) the fair market value of the common stock. In
the event of our liquidation, dissolution or winding up, the holders of our
Series C Preferred Stock are entitled to receive a preferential distribution of
$72 per share, plus all unpaid accrued dividends. Finally, we may, within 120
days after the occurrence of a "capital event," elect to redeem all or a pro
rata portion of the outstanding Series C Preferred Stock for the redemption
price of $72 per share, plus all unpaid accrued dividends. A "capital event" is
defined as a sale of our assets which results in at least a $5,000,000 excess of
the purchase price paid for the assets and our basis in such assets.
SERIES D PREFERRED STOCK
We are authorized to issue up to 4,000 shares of Series D Preferred
Stock, none of which are issued and outstanding. The Series D Preferred Stock
has a stated value of $1,000 per share and is convertible into an aggregate of
330,000 shares of common stock at the lesser price of $6.00 per share or the
average of the two lowest closing prices of the common stock during the 30
consecutive trading days immediately preceding the date of conversion. Prior to
conversion, the holders of Series D Preferred Stock are not entitled to vote on
any matter except as required by Delaware law. The holders of shares of Series D
Preferred Stock are entitled to receive a dividend of $70 per annum per share of
Series D Preferred Stock, which shall increase to $150 per annum per share of
Series D Preferred Stock upon the conversion of the outstanding Series D
Preferred Stock into more than 330,000 shares of common stock. Dividends with
respect to a share of Series D Preferred Stock are payable in arrears on the
earlier to occur of the conversion or redemption of such share of Series D
Preferred Stock. At our option, Series D Preferred Stock dividends are payable
in cash or, subject to certain limitations, by delivery of that number of shares
of common stock that the amount of accrued dividends payable would entitle the
Series D Preferred Stock holder to acquire at a price per share of common stock
equal to the lesser of $6.00 and the average of the two lowest closing prices of
the common stock during the preceding 30 days. In the event of our liquidation,
dissolution or winding up, the holders of our Series D Preferred Stock are
entitled to receive a preferential distribution of $1,000 per share, plus all
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unpaid accrued dividends. On or after February 8, 2005, the holders of Series D
Preferred Stock can demand that their Series D Preferred Stock be redeemed for
that number of shares of common stock equal to the product of (a) the number of
shares of Series D Preferred Stock surrendered and (b) a fraction, the numerator
of which is the common stock's current market price and the denominator of which
is the lesser of $6.00 and the average of the two lowest closing prices of the
common stock during the preceding 30 days. The holders of Series D Preferred
Stock can also demand that their shares be redeemed if we default in effecting a
conversion of shares of Series D Preferred Stock and such default continues for
10 days, or if we default in the payment of the stated value ($1,000 per share)
or of dividends when due and such default continues for 10 days. Upon a
redemption following such a default described in the prior sentence, we must pay
the holders of Series D Preferred Stock demanding redemption, in cash, $1,250
per share of Series D Preferred Stock plus all accrued unpaid dividends.
Finally, between the date we announce our intention to effectuate a change in
our control until three days prior to such change in control, the holders of
Series D Preferred Stock may demand that their Series D Preferred Stock be
redeemed for 125% of the number of shares of common stock to which their Series
D Preferred Stock would otherwise be convertible.
SERIES E PREFERRED STOCK
We are authorized to issue up to 1,730,697 shares of Series E
Preferred Stock, all of which are issued and outstanding. These shares of Series
E Preferred Stock are not convertible into shares of common stock. However, each
share of common stock represents the right to .25 of a vote on all matters to be
voted upon by the holders of common stock. The holders of Series E Preferred
Stock are entitled to receive, out of assets legally available for payment, a
cash dividend of $.80 per annum per share of Series E Preferred Stock. This
Series E Preferred Stock dividend accrues from the date of initial issuance and
is payable on the first to occur of the redemption of such Series E Preferred
Stock or our liquidation, dissolution or winding up. In the event of our
liquidation, dissolution or winding up, the holders of our Series E Preferred
Stock are entitled to receive a preferential distribution of $10 per share, plus
all unpaid accrued dividends. Finally, we, at our option, may redeem all or part
of the Series E Preferred Stock at any time for the redemption price of $10 per
share, plus all accrued unpaid dividends, in cash or by delivery of a promissory
note payable over three years.
DELAWARE ANTI-TAKEOVER LAW AND PROVISIONS OF OUR CERTIFICATE OF INCORPORATION
AND BYLAWS
DELAWARE ANTI-TAKEOVER LAW
We are subject to Section 203 of the Delaware General Corporation
Law. Section 203 generally prohibits a public Delaware corporation from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless:
o prior to the date of the transaction, the Board of Directors
of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming
an interested stockholder;
o the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining
the number of shares outstanding (i) shares owned by persons
who are directors and also officers and (ii) shares owned by
employee stock plans in which employee participants do not
have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or
exchange offer; or
o on or subsequent to the date of the transaction, the business
combination is approved by the board and authorized at an
annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested
stockholder.
Section 203 defines a business combination to include:
o any merger or consolidation involving the corporation and the
interested stockholder;
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o any sale, transfer, pledge or other disposition involving the
interested stockholder of 10% or more of the assets of the
corporation;
o subject to exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder; or
o the receipt by the interested stockholder of the benefit of
any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with, or controlling, or
controlled by, the entity or person. The term "owner" is broadly defined to
include any person that, individually, with or through that person's affiliates
or associates, among other things, beneficially owns the stock, or has the right
to acquire the stock, whether or not the right is immediately exercisable, under
any agreement or understanding or upon the exercise of warrants or options or
otherwise or has the right to vote the stock under any agreement or
understanding, or has an agreement or understanding with the beneficial owner of
the stock for the purpose of acquiring, holding, voting or disposing of the
stock.
The restrictions in Section 203 do not apply to corporations that
have elected, in the manner provided in Section 203, not to be subject to
Section 203 of the Delaware General Corporation Law or, with certain exceptions,
which do not have a class of voting stock that is listed on a national
securities exchange or authorized for quotation on the Nasdaq Stock Market or
held of record by more than 2,000 stockholders. Our certificate of incorporation
and amended and restated bylaws do not opt out of Section 203.
Section 203 could delay or prohibit mergers or other takeover or
change in control attempts with respect to us and, accordingly, may discourage
attempts to acquire us even though such a transaction may offer our stockholders
the opportunity to sell their stock at a price above the prevailing market
price.
CERTIFICATE OF INCORPORATION AND BYLAWS
Provisions of our certificate of incorporation and amended and
restated bylaws may delay or discourage transactions involving an actual or
potential change in our control or change in our management, including
transactions in which stockholders might otherwise receive a premium for their
shares, or transactions that our stockholders might otherwise deem to be in
their best interests. Therefore, these provisions could adversely affect the
price of our common stock. Among other things, our certificate of incorporation
and amended and restated bylaws:
o permit our Board of Directors to issue up to 3,225,045 shares
of preferred stock, with any rights, preferences and
privileges as they may designate, including the right to
approve an acquisition or other change in control;
o provide that the authorized number of directors may be changed
only by resolution of the board of directors;
o provide that all vacancies, including newly created
directorships, may, except as otherwise required by law, be
filled by the affirmative vote of a majority of directors then
in office, even if less than a quorum;
o divide our board of directors into three classes, with each
class serving staggered three-year terms;
o requires the approval by the holders of at least 80% of our
outstanding common stock to modify the staggered nature of our
board of directors;
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o do not provide for cumulative voting rights (therefore
allowing the holders of a majority of the shares of common
stock entitled to vote in any election of directors to elect
all of the directors standing for election, if they should so
choose); and
o provide that special meetings of our stockholders may be
called only by the chairman of the board or by the board of
directors.
LIMITATION OF LIABILITY; INDEMNIFICATION
Our certificate of incorporation contains certain provisions
permitted under the Delaware General Corporation Law relating to the liability
of our directors. These provisions eliminate a director's personal liability for
monetary damages resulting from a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, including:
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
o any unlawful payments of dividends or unlawful stock
repurchases, redemptions or other distributions as provided in
Section 174 of the Delaware General Corporation Law; or
o for any transaction from which the director derives an
improper personal benefit.
These provisions do not limit or eliminate our rights or those of
any stockholder to seek non-monetary relief, such as an injunction or
rescission, in the event of a breach of a director's fiduciary duty. These
provisions will not alter a director's liability under federal securities laws.
Our amended and restated bylaws also contain provisions indemnifying our
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law. We believe that these provisions are necessary to attract and
retain qualified individuals to serve as directors and officers.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes certain United States federal
income tax consequences of the ownership and disposition of the notes, and with
respect to Non-U.S. Holders (as defined below), of common stock. This discussion
applies only to:
o notes purchased by the initial purchaser at the "issue price,"
which will equal the first price at which a substantial amount
of the notes is sold to the public (excluding bond houses,
brokers or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers);
and
o notes and stock held as capital assets (in general, assets
held for investment).
This discussion does not describe all of the tax consequences that
may be relevant to a holder in light of its particular circumstances or to
holders subject to special rules, such as:
o dealers in securities or securities traders electing to mark
to market;
o tax-exempt organizations;
o banks, insurance companies, regulated investment companies and
other financial institutions;
o persons holding notes as part of a straddle, hedge, integrated
or constructive sale or similar transaction;
o U.S. Holders (as defined below) whose functional currency is
not the United States dollar;
o certain former citizens or residents of the United States; and
o partnerships or other entities classified as partnerships for
United States federal income tax purposes or investors in
partnerships or other entities classified as partnerships for
United States federal income tax purposes.
In addition, this discussion does not address any tax consequences
under state, local or foreign tax laws, or under United States estate and gift
tax law or any United States alternative minimum tax consequences. This summary
is based on the Internal Revenue Code of 1986, as amended (the "CODE"),
administrative pronouncements, judicial decisions and final, temporary and
proposed Treasury regulations, changes to any of which, subsequent to the date
of this prospectus, may affect the tax consequences described herein.
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO IT OF PURCHASING, OWNING AND DISPOSING OF THE
NOTES OR COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN OR OTHER TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE
LAW.
TAX CONSEQUENCES TO U.S. HOLDERS
As used herein, the term "U.S. Holder" means a beneficial owner of a
note that is, for United States federal income tax purposes:
o a citizen or resident of the United States;
o a corporation (or other entity taxable as a corporation for
United States federal income tax purposes), created or
organized in or under the laws of the United States or any
political subdivision thereof, any state or the District of
Columbia;
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o a trust if (1) a court within the United States is able to
exercise primary jurisdiction over its administration and one
or more U.S. persons have the authority to control all of the
substantial decisions of the trust, or (2) it has a valid
election in effect under applicable Treasury regulations to be
treated as a U.S. person; or
o an estate, the income of which is subject to United States
federal income taxation regardless of its source.
PAYMENTS OF INTEREST
The notes were issued without original issue discount for United
States federal tax purposes. Accordingly, interest paid on a note including
certain make-whole amounts (whether paid in cash or common stock) will be
taxable to a U.S. Holder as ordinary interest income at the time it accrues or
is received in accordance with the U.S. Holder's method of accounting for United
States federal income tax purposes.
CONVERSION INTO COMMON STOCK
A U.S. Holder's conversion of a note into common stock will not be a
taxable event, except that the receipt of any cash in lieu of a fractional share
of common stock will result in capital gain or loss (measured by the difference
between the cash received in lieu of the stock and the U.S. Holder's tax basis
attributable to the stock, as described below), and the fair market value of the
common stock received with respect to accrued and unpaid interest will be taxed
as a payment of interest (as described above).
A U.S. Holder's aggregate tax basis in common stock received upon a
conversion of a note will be the same as the U.S. Holder's basis in the note at
the time of conversion, reduced by any basis allocated to a fractional share of
common stock in lieu of which cash was received and increased, for a cash method
holder, by the amount of the fair market value of common stock received with
respect to accrued interest. The U.S. Holder's holding period for the common
stock received will include the holder's holding period for the note converted,
except that the holding period of any common stock received with respect to
accrued and unpaid interest will commence on the day after the date of
conversion.
SALE, EXCHANGE, REDEMPTION OR RETIREMENT OF THE NOTES
Unless a non-recognition provision applies, upon the sale, exchange,
redemption or retirement of a note (other than a conversion into common stock),
a U.S. Holder will recognize taxable gain or loss equal to the difference
between the amount realized on the sale, exchange, redemption or retirement and
the holder's adjusted tax basis in the note. The adjusted tax basis in a note
will generally equal its cost. For these purposes, the amount realized does not
include any amount attributable to accrued and unpaid interest. Amounts
attributable to accrued and unpaid interest are treated as interest, as
described under "Payments of Interest" above. Gain or loss realized on the sale,
exchange, redemption or retirement of a note will generally be capital gain or
loss and will be long-term capital gain or loss if at the time of sale,
exchange, redemption or retirement the note has been held for more than one
year. The deductibility of capital losses is subject to limitations.
CONSTRUCTIVE DIVIDENDS ON THE NOTES
If we were to make certain distributions of property to stockholders
(for example, taxable distributions of cash or distributions of evidences of
indebtedness or assets, but generally not stock dividends or rights to subscribe
for our common stock) and the conversion price underlying the notes was reduced
pursuant to the anti-dilution provisions of the indenture, such reduction would
be deemed to be a distribution to U.S. Holders. In addition, other reductions in
(or failures to adjust) the conversion price of the notes may, depending on the
circumstances, be deemed to be distributions to U.S. Holders, taxable as a
dividend to the extent of our current or accumulated earnings and profits, even
though the U.S. Holder will not have received any cash or property as a result
of the adjustment. In particular, any reduction in the conversion price of the
notes to compensate holders of notes for taxable distributions of cash on any of
our outstanding common stock will be treated as a deemed distribution to such
holders in an amount equal to the value of the additional stock issuable upon
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conversion, which will be taxable as a dividend to the extent of our current and
accumulated earnings and profits. It is not clear whether a constructive
dividend deemed paid to you would be eligible for the preferential rates of
United States federal income tax applicable to certain dividends under recently
enacted legislation. It is also unclear whether corporate holders would be
entitled to claim the dividends received deduction with respect to any such
constructive dividends. In certain circumstances, the failure to make an
adjustment of the conversion price under the indenture may result in a taxable
distribution to holders of our common stock.
CHANGE IN INTEREST RATE; MAKE-WHOLE PAYMENTS; LIQUIDATED DAMAGES
According to the applicable Treasury regulations, the possibility of
a change in the interest rate on the notes or the payment of certain make-whole
amounts will not affect the amount or timing of interest income recognized by a
holder of a note if the likelihood of the change, as of the date the notes are
issued, is remote. We intend to take the position, which is not binding on the
Internal Revenue Service ("IRS"), that the possibility of payment of a coupon
reset or the payment of a make-whole amount under the notes is remote and do not
intend to treat that possibility as affecting the yield to maturity of the notes
(for purposes of the original issue discount provisions of the Code).
Accordingly, any additional interest or make-whole amounts payable to holders of
the notes should be includible in gross income as interest income by a U.S.
Holder at the time the payment is made or accrues in accordance with such U.S.
Holder's regular method of tax accounting. We intend to take a similar tax
position with respect to any payment of liquidated damages. Our position will be
binding on the holder unless such holder explicitly discloses that the holder's
determination is different, which disclosure is made on a statement attached to
the holder's timely filed federal income tax return for the taxable year that
includes the acquisition date of the note. In the event that the IRS was to
successfully challenge our positions, the amount or timing of interest income
recognized by a holder of a note may have to be redetermined. In addition, if
the note were treated as a "contingent payment debt instrument" (E.G., upon a
recharacterization of the note by the IRS or upon a change in future
circumstances), gain with respect to a sale or retirement of the note would be
treated as ordinary, interest income.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Unless you are an exempt recipient such as a corporation,
information returns will be filed with the IRS in connection with payments on
the notes and the proceeds from a sale or other disposition of the notes. A U.S.
Holder may be subject to United States backup withholding tax on these payments
if the U.S. Holder fails to provide its taxpayer identification number to the
paying agent and comply with certain certification procedures or otherwise
establish an exemption from backup withholding. The amount of any backup
withholding from a payment to a U.S. Holder will be allowed as a credit against
the U.S. Holder's United States federal income tax liability and may entitle the
U.S. Holder to a refund, provided that the required information is timely
furnished to the IRS.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
As used herein, the term "Non-U.S. Holder" means a beneficial owner
that is, for United States federal income tax purposes:
o an individual who is classified as a nonresident alien;
o foreign corporation (or other entity taxable as a corporation
for United States federal income tax purposes); or
o a foreign estate or trust.
Special rules may apply to certain Non-U.S. Holders such as
"controlled foreign corporations," "passive foreign investment companies" and
"foreign personal holding companies." Such entities should consult their tax
advisors to determine the United States federal, state local and other tax
consequences that may be relevant to them.
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PAYMENTS ON THE NOTES
Subject to the discussion below concerning backup withholding,
principal and interest payments (including liquidated damages, if any) will not
be subject to United States federal withholding tax if:
o the certification requirements described below have been
fulfilled with respect to the beneficial owner, and either:
o interest is United States trade or business income (as defined
below); or
o each of the following two conditions has been satisfied:
o the holder does not own, actually or constructively, 10
percent or more of the total combined voting power of
all classes of our stock entitled to vote; and
o the holder is not a controlled foreign corporation (as
defined in the Code) related, directly or indirectly, to
us through stock ownership.
CERTIFICATION REQUIREMENT
Except as provided below with respect to United States trade or
business income (as defined below), interest with respect to a note will not be
exempt from withholding tax unless the beneficial owner of the note provides a
properly-executed IRS Form W-8BEN and certifies on such form, under penalties of
perjury, that it is not a U.S. person.
If a Non-U.S. Holder of a note is engaged in a trade or business in
the United States, and if interest on the note is effectively connected with the
conduct of this trade or business, or, in the case of treaty resident,
attributable to a permanent establishment (or, in the case of an individual, a
fixed base) in the United States, although exempt from the withholding tax as
discussed in the preceding paragraphs, the income will be "United States trade
or business income" and will generally be taxed in the same manner as if the
holder were a U.S. holder (see "Tax Consequences to U.S. Holders" above), except
that the holder will be required to provide a properly-executed IRS Form W-8ECI
in order to claim an exemption from withholding tax. These holders are urged to
consult their own tax advisors with respect to other United States tax
consequences of the ownership and disposition of notes, including, in the case
of corporations, the possible imposition of a branch profits tax at a 30% rate
(or a lower applicable treaty rate).
Payments of interest on the notes that do not meet the foregoing
requirements generally will be subject to United States federal withholding tax
at a rate of 30% (or a lower applicable treaty rate, provided certain
certification requirements are met).
SALE, EXCHANGE OR OTHER DISPOSITION OF THE NOTES OR COMMON STOCK
Subject to the discussion below concerning backup withholding, a
Non-U.S. Holder generally will not be subject to United States federal income
tax (or any withholding thereof) on gain realized upon sale or other disposition
of notes or common stock, unless:
o the note holder is an individual who is present in the United
States for 183 days or more in the taxable year of disposition
and certain other conditions are met;
o the gain is United States trade or business income; or
o we are or have been a United States real property holding
corporation, as defined in the Code at any time within the
five-year period preceding the disposition or the Non-U.S.
Holder's holding period, whichever period is shorter, and if
we are or have been a United States real property holding
corporation within that time, the note holder owns more than
5% of our common stock.
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We believe that we are not, and do not anticipate becoming, a United
States real property holding corporation for United States federal income tax
purposes.
CONVERSION INTO COMMON STOCK
A Non-U.S. Holder's conversion of a note into common stock will not
be a taxable event. However, a Non-U.S. Holder that receives cash in lieu of a
fractional share upon conversion may have gain that is subject to the rules
described under "Sale Exchange or Other Disposition of the Notes or Common
Stock," and a Non-U.S. Holder that receives common stock in respect of accrued
and unpaid interest would be subject to the rules described under "Payments on
the Notes."
DIVIDENDS
Dividends paid to a Non-U.S. Holder of common stock (and deemed
dividends on the notes described above under "Tax Consequences to U.S.
Holders--Constructive Dividends on the Notes") generally will be subject to
withholding tax at a 30% rate or a reduced rate specified by an applicable
income tax treaty. Non-U.S. Holders should note as discussed above under "Tax
Consequences to U.S. Holders-Constructive Dividends on the Notes," that any
reduction in the conversion price of the notes to compensate holders of notes
for taxable distributions of cash on any of our outstanding common stock will be
treated as a deemed distribution to such holders in an amount equal to the value
of the additional stock issuable upon conversion, which will be taxable as a
dividend to the extent of our current and accumulated earnings and profits.
Except as described below with respect to United States trade or business
income, in order to obtain a reduced rate of withholding, a Non-U.S. Holder will
be required to provide an IRS Form W-8BEN certifying its entitlement to benefits
under a treaty.
The withholding tax does not apply to dividends paid to a Non-U.S.
Holder who provides a Form W-8ECI, certifying that the dividends are United
States trade or business income. Instead such dividends will be subject to
regular United States federal income tax as if the Non-U.S. Holder were a U.S.
Holder. A Non-United States corporation receiving such dividends may also be
subject to an additional "branch profits tax" imposed at a rate of 30% (or a
lower applicable treaty rate).
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information returns will be filed with the IRS in connection with
payments of interest on the notes and dividends on the common stock. Unless the
Non-U.S. Holder complies with certification procedures to establish that it is
not a U.S. person, information returns may be filed with the IRS in connection
with the proceeds from a sale or other disposition of the notes and common
stock, and the Non-U.S. Holder may be subject to United States backup
withholding tax on payments of interest on the notes or on dividends or the
proceeds from a sale or other disposition of the notes or common stock. The
certification procedures required to claim the exemption from United States
federal withholding tax on interest described above will satisfy the
certification requirements necessary to avoid the backup withholding tax as
well. The amount of any backup withholding from a payment to a Non-U.S. Holder
will be allowed as a credit against the Non-U.S. Holder's United States federal
income tax liability and may entitle the Non-U.S. Holder to a refund, provided
that the required information is timely furnished to the IRS.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES OR OUR
COMMON STOCK IS GENERAL INFORMATION ONLY AND NOT TAX ADVICE. ACCORDINGLY, EACH
INVESTOR IS URGED TO CONSULT THAT INVESTOR'S OWN TAX ADVISER AS TO PARTICULAR
TAX CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF NOTES AND, WHERE
APPLICABLE, OUR COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS AND OF ANY PROPOSED CHANGES IN
APPLICABLE LAW.
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LEGAL MATTERS
The validity of the securities offered under this prospectus will be
passed upon for us by Olshan Grundman Frome Rosenzweig & Wolosky LLP, New York,
New York.
EXPERTS
The consolidated financial statements of Empire Resorts, Inc. as of
December 31, 2003 and for the years ended December 31, 2002 and 2003
incorporated in this prospectus by reference to the Annual Report on Form 10-KSB
for the year ended December 31, 2003 have been so incorporated in reliance on
the report of Friedman LLP (formerly Friedman Alpren & Green LLP),
independent accountants, given on the authority of said firm as experts in
auditing and accounting. The consolidated financial statements of Catskill
Development, L.L.C. as of and for the year ended December 31, 2003 incorporated
in this prospectus by reference to the Annual Report on Form 10-KSB for the year
ended December 31, 2003 have been so incorporated in reliance on the report of
Friedman LLP (formerly Friedman Alpren & Green LLP), independent
accountants, given on the authority of said firm as experts in auditing and
accounting. The consolidated financial statements of Catskill Development,
L.L.C. as of and for the years ended December 31, 2001 and 2002 incorporated in
this prospectus by reference to the Annual Report on Form 10-KSB for the year
ended December 31, 2003 have been so incorporated in reliance on the report of
Bachrach, Waschitz and Waschitz, LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document that we file at the Public Reference Room of the Securities
and Exchange Commission at 450 Fifth Street NW Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. In addition, the
Securities and Exchange Commission maintains an Internet site at
http://www.sec.gov. from which interested persons can access the reports, proxy
and information statements and other information that we electronically file
with the Securities and Exchange Commission. The documents we file
electronically with the Securities and Exchange Commission are also available at
our website, www.empireresorts.com.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the Securities and Exchange Commission
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the
Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act until the termination of the offering:
o our Annual Report on Form 10-KSB for the year ended December
31, 2003;
o our Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2004;
o our Quarterly Report on Form 10-QSB for the quarter ended June
30, 2004; and
o our Current Reports on Form 8-K filed with the Securities and
Exchange Commission on January 13, 2004, January 15, 2004,
February 2, 2004, April 21, 2004, May 4, 2004, June 11, 2004,
June 30, 2004, July 9, 2004, July 20, 2004, July 21, 2004,
July 27, 2004, August 20, 2004 and September 9, 2004,
excluding any information that we have furnished, but not filed for purposes of
the Exchange Act.
You may obtain a copy of these filings at no cost, by writing or
telephoning us at the following:
82
Empire Resorts, Inc.
Attention: Investor Relations
Route 17B
P.O. Box 5013
Monticello, New York 12701
Tel: (845) 794-4100
or by downloading them from our website www.empireresorts.com.
83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than
selling commissions and other fees to be paid to the underwriters) which will be
paid by the Registrant in connection with the issuance and distribution of the
securities being registered. With the exception of the Securities and Exchange
Commission ("SEC") registration fee and the National Association of Securities
Dealers ("NASD") filing fee, all amounts shown are estimates.
SEC registration fee........................................$ 8,235.50
Legal fees and expenses..................................... 15,000.00
Accounting fees and expenses................................ 5,000.00
Miscellaneous expenses...................................... 1,764.50
-----------
Total.....................................$ 30,000.00
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent to the Registrant. The
Delaware General Corporation Law provides that Section 145 is not exclusive of
other rights to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Article V of the Registrant's amended and restated bylaws and Article Sixth of
our certificate of incorporation provide that the Registrant shall indemnify its
directors and officers, and may indemnify its employees and other agents, to the
fullest extent permitted by the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases, redemptions or
other distributions, or (iv) for any transaction from which the director derived
an improper personal benefit. The Registrant's certificate of incorporation
provides for such limitation of liability.
The Registrant maintains standard policies of insurance under which
coverage is provided (a) to its directors, officers, employees and other agents
against loss rising from claims made by reason of breach of duty or other
wrongful act, and (b) to the Registrant with respect to payments which may be
made by the Registrant to such officers and directors pursuant to the above
indemnification provision or otherwise as a matter of law.
II-1
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits:
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
5.1* Opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP
23.1 Consent of Friedman LLP
23.2 Consent of Friedman LLP
23.3 Consent of Bachrach, Waschitz and Waschitz, LLP
23.4* Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP
(contained in Exhibit 5.1).
24.1* Powers of Attorney (included on the signature page of the
initial filing of this Registration Statement).
25.1* Statement of Eligibility of Trust (Form T-1)
* Previously filed
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or
sells securities, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts
or events which, individually or together, represent a fundamental change
in the information in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
(iii) To include any additional or changed
material information;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section do
not apply if the registration statement is on Form S-3, Form S-8 or Form F-3,
and the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
II-2
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 30th day of
September, 2004.
EMPIRE RESORTS, INC.
By: /s/ Robert A. Berman
-------------------------------------
Robert A. Berman
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman of the Board September 30, 2004
--------------------------
David Matheson
/s/ Robert A. Berman Chief Executive Officer September 30, 2004
-------------------------- and Director (principal
Robert A. Berman executive officer)
/s/ Scott A. Kaniewski Chief Financial Officer September 30, 2004
-------------------------- (principal financial and
Scott A. Kaniewski accounting officer)
* President and Director September 30, 2004
--------------------------
Morad Tahbaz
* Director September 30, 2004
--------------------------
Joseph E. Bernstein
* Director September 30, 2004
--------------------------
Ralph J. Bernstein
* Director September 30, 2004
--------------------------
David P. Hanlon
II-4
SIGNATURE TITLE DATE
--------- ----- ----
* Director September 30, 2004
--------------------------
John Sharpe
* Director September 30, 2004
--------------------------
Paul A. deBary
* BY: /s/ Robert A. Berman
---------------------
Robert A. Berman
Attorney-in-fact
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 30th day of September, 2004.
ALPHA MONTICELLO, INC.
By: /s/ Scott A. Kaniewski
--------------------------
Scott A. Kaniewski
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Scott A. Kaniewski President and Director September 30, 2004
-------------------------- (principal executive officer)
Scott A. Kaniewski
* Treasurer, Secretary and September 30, 2004
-------------------------- Director (principal financial
Brian Nastruz and accounting officer)
*BY: /s/ Scott A. Kaniewski
----------------------
Scott A. Kaniewski
Attorney-in-fact
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 30th day of September, 2004.
ALPHA CASINO MANAGEMENT INC.
By: /s/ Scott A. Kaniewski
-------------------------
Scott A. Kaniewski
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Scott A. Kaniewski President and Director September 30, 2004
-------------------------- (principal executive officer)
Scott A. Kaniewski
* Treasurer, Secretary and September 30, 2004
-------------------------- Director (principal financial
Brian Nastruz and accounting officer)
*BY: /s/ Scott A. Kaniewski
-----------------------
Scott A. Kaniewski
Attorney-in-fact
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 30th day of September, 2004.
MOHAWK MANAGEMENT, LLC
By: /s/ Scott A. Kaniewski
-------------------------
Scott A. Kaniewski
Manager
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Scott A. Kaniewski Manager September 30, 2004
--------------------------
Scott A. Kaniewski
* Manager September 30, 2004
--------------------------
Morad Tahbaz
*BY: /s/ Scott A. Kaniewski
-----------------------
Scott A. Kaniewski
Attorney-in-fact
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 30th day of September, 2004.
MONTICELLO RACEWAY DEVELOPMENT COMPANY,
LLC
By: /s/ Scott A. Kaniewski
----------------------------------
Scott A. Kaniewski
Manager
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Scott A. Kaniewski Manager September 30, 2004
--------------------------
Scott A. Kaniewski
* Manager September 30, 2004
--------------------------
Morad Tahbaz
*BY: /s/ Scott A. Kaniewski
----------------------
Scott A. Kaniewski
Attorney-in-fact
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 30th day of September, 2004.
MONTICELLO CASINO MANAGEMENT, LLC
By: /s/ Scott A. Kaniewski
--------------------------
Scott A. Kaniewski
Manager
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Scott A. Kaniewski Manager September 30, 2004
--------------------------
Scott A. Kaniewski
* Manager September 30, 2004
--------------------------
Morad Tahbaz
*BY: /s/ Scott A. Kaniewski
-----------------------
Scott A. Kaniewski
Attorney-in-fact
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 30th day of September, 2004.
MONTICELLO RACEWAY MANAGEMENT, INC.
By: /s/ Thomas W. Aro
-------------------------------
Thomas W. Aro
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas W. Aro President and Director September 30, 2004
-------------------------- (principal executive
Thomas W. Aro officer)
* Treasurer and Secretary September 30, 2004
-------------------------- (principal financial and
Mark Marasco accounting officer)
/s/ Robert A. Berman Director September 30, 2004
--------------------------
Robert A. Berman
* Director September 30, 2004
--------------------------
Morad Tahbaz
* Director September 30, 2004
--------------------------
Clifford A. Ehrlich
* Director September 30, 2004
--------------------------
Philip B. Berman
*BY: /s/ Thomas W. Aro
------------------
Thomas W. Aro
Attorney-in-fact
II-11
EXHIBIT INDEX
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
5.1* Opinion of Olshan Grundman
Frome Rosenzweig & Wolosky LLP
23.1 Consent of Friedman LLP
23.2 Consent of Friedman LLP
23.3 Consent of Bachrach, Waschitz and Waschitz, LLP
23.4* Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP
(contained in Exhibit 5.1).
24.1* Powers of Attorney (included on the signature page of the initial
filing of this Registration Statement).
25.1* Statement of Eligibility of Trust (Form T-1)
*Previously filed